What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-08-25 compared with 2022-05-26 · 99 added, 79 removed, 200 unchanged (47% of the section changed)

3 unchanged sentences

Executive Overview

We are the largest discount retailer in the United States by number of stores, with 18,356 stores located in 47 states as of April 29, 2022, 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 18,566 stores located in 47 states as of July 29, 2022, 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.

7 unchanged sentences

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

We continue to monitor the potential impact of reductions in SNAP benefits, although such reductions did not result in a material impact on our business or financial results in the first quarter of 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;

as well as cost inflation in frequently purchased household products, such as that which we have continued to experience as further discussed below.

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, as well as cost inflation in frequently purchased household products (including food), such as that which we have continued to experience as further discussed below.

Finally, significant unseasonable or unusual weather patterns can impact customer shopping behaviors.

3 unchanged sentences

We seek to drive profitable sales growth through initiatives aimed at increasing customer traffic and average transaction amount.

As we work to provide everyday low prices and meet our customers’ affordability needs, we remain focused on enhancing our margins through effective category management, inventory shrink reduction initiatives, private brands penetration, distribution and transportation efficiencies, global sourcing, and pricing and markdown optimization.

As we work to provide everyday low prices and meet our customers’ affordability needs, we remain focused on enhancing our margins through pricing and markdown optimization, effective category management, inventory shrink reduction initiatives, private brands penetration, distribution and transportation efficiencies, and global sourcing.

Several of our strategic and other sales-driving initiatives are also designed to capture growth opportunities and are discussed in more detail below.

Historically, our sales in our consumables category, which tend to have lower gross margins, have been the key drivers of net sales and customer traffic, while sales in our non-consumables categories, which tend to have higher gross margins, have contributed to more profitable sales growth and an increase in average transaction amount.

Historically, sales in our consumables category, which tend to have lower gross margins, have been the key drivers of net sales and customer traffic, while sales in our non-consumables categories, which tend to have higher gross margins, have contributed to more profitable sales growth and an increase in average transaction amount.

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 we saw a significant increase in demand in many non-consumable products, including home, seasonal and apparel, resulting in an overall significant mix

shift into non-consumable categories during those periods.

Beginning in the second quarter of 2021 and continuing thereafter, we began to see some reversion toward the prior mix trends.

We continue to expect some sales mix challenges to persist as the mix trend reversion toward consumables has returned to pre-pandemic levels.

Beginning in the second quarter of 2021 and continuing thereafter, we began to see reversion toward the historical mix trends.

We continue to expect sales mix challenges to

persist as the mix trend reversion toward consumables has returned to, and now exceeds, pre-pandemic levels.

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

however, there can be no assurances that these efforts will be successful.

We also experienced a shift in customer behavior toward trip consolidation, as customers shopped our stores less frequently in 2020 and 2021 than in 2019 but had a larger average transaction amount.

In the first quarter of 2022, we saw a continuation of the trend toward a larger transaction amount, which we believe was driven primarily by inflation, and, to a lesser degree, our merchandising efforts.

In addition, although we believe our sales in recent periods were negatively impacted by the global and domestic supply chain challenges and disruptions discussed further below, primarily in the form of lower merchandise in-stock levels in our stores, we have seen some improvement in our in-stock levels in the first quarter of 2022.

In the first half of 2022, we saw continued growth in average transaction amount, which was driven primarily by inflation, and, to a lesser degree, our merchandising efforts.

In the second quarter of 2022, we experienced slightly positive customer traffic.

However, these supply chain challenges are ongoing, and there can be no assurance that we will continue to experience improvements in in-stock levels or when in-stock levels will return to historical pre-pandemic levels.

1 unchanged sentence

Such opportunities include providing our customers with additional shopping access points and even greater convenience by leveraging and developing digital tools and technology, such as our Dollar General app, which contains a variety of tools to enhance the in-store shopping experience.

Additionally, we launched a partnership with a third party delivery service during 2021, which was available in approximately 11,000 stores at the end of the first quarter of 2022, and we 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.

Additionally, we launched a partnership with a third party delivery service during 2021, which was available in more than 13,300 of our stores at the end of the second quarter of 2022, and we 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, continues to contribute to improved overall sales and gross margin performance in stores where it has been deployed.

1 unchanged sentence

Additionally, we are continuing to grow the footprint of pOpshelf, a unique retail concept that incorporates certain of the lessons learned from the non-consumables initiative 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 first quarter of 2022, we operated 66 standalone pOpshelf locations and 25 pOpshelf store-within-a-store concepts within existing Dollar General Market stores.

At the end of the second quarter of 2022, we operated 80 standalone pOpshelf locations and 32 pOpshelf store-within-a-store concepts within existing Dollar General Market stores.

Our goal is to operate approximately 150 pOpshelf locations, as well as approximately 40 pOpshelf store-within-a-store concepts, by the end of 2022.

We believe this concept represents a significant growth opportunity, and are targeting approximately 1,000 stores by the end of 2025.

We believe this concept represents a significant growth opportunity and are targeting approximately 1,000 pOpshelf stores by the end of 2025.

Our “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, has positively contributed to our sales performance since we completed the initial rollout in the second quarter of 2021, driven by higher in-stock levels and the introduction of new products in select stores.

3 unchanged sentences

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

In the first quarter of 2022, we opened 239 new stores, remodeled 532 stores, and relocated 32 stores.

Although we are seeing inflationary pressures in building costs, we remain on track to open approximately 1,110 new stores (including planned pOpshelf stores and up to ten stores in Mexico), remodel approximately 1,750 stores, and relocate approximately 120 stores, for a total of 2,980 real estate projects in 2022.

We expect stores in Mexico, which will represent our first store locations outside the United States, to open in the second half of 2022.

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.

In the first half of 2022, we opened 466 new stores, remodeled 1,065 stores, and relocated 62 stores.

As a result of ongoing delays in permitting and receipt of construction materials, our new store openings are expected to be in the range of 1,010 to 1,060 (including planned pOpshelf stores and our first stores in Mexico) in 2022.

As a result of the revised new store plans, we now plan to remodel approximately 1,795 stores, and relocate approximately 125 stores, for a total in the range of 2,930 to 2,980 real estate projects in 2022.

We expect stores in Mexico, which will represent our first store locations outside the United States, to open in the fourth quarter of 2022.

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

We expect store format innovation to allow us to capture additional growth opportunities within our existing markets.

We are now using two larger format stores (approximately 8,500 square feet and 9,500 square feet, respectively), and expect the 8,500 square foot format, along with our existing Dollar General Plus format of a similar size, to become our base prototypes for the majority of new stores, replacing our traditional 7,300 square foot format and higher-cooler count Dollar General Traditional Plus format.

We are now using two larger format stores (approximately 8,500

square feet and 9,500 square feet, respectively), and expect the 8,500 square foot format, along with our existing Dollar General Plus format of a similar size, to become our base prototypes for the majority of new stores, replacing our traditional 7,300 square foot format and higher-cooler count Dollar General Traditional Plus format.

The larger formats allow for expanded high-capacity-cooler counts;

7 unchanged sentences

We are continuing to deploy “Fast Track,” an initiative aimed at further enhancing our convenience proposition and in-stock position as well as increasing labor efficiencies within our stores.

The completed first phase of Fast Track involved sorting process optimization within our non-refrigerated distribution centers, as well as increased shelf-ready packaging, to allow for greater store-level stocking efficiencies, while the ongoing second phase involves adding a self-checkout option, which we plan to have in up to 11,000 stores by the end of 2022.

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

To further optimize our cost structure and facilitate greater operational control within our supply chain, we plan to double the size of our private tractor fleet in 2022.

We had more than 950 tractors in our fleet at the end of the first quarter of 2022, and our goal is to have more than 1,400 tractors in the fleet by the end of 2022.

We had more than 1,100 tractors in our fleet at the end of the second quarter of 2022, and our goal is to have more than 1,400 tractors in the fleet by the end of 2022.

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.

3 unchanged sentences

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

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

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

To the extent that these inflationary pressures result in a recessionary environment, we may experience adverse effects on our business, results of operations and cash flows.

2 unchanged sentences

There can be no assurance that our mitigation efforts will be successful.

Moreover, recent increases in market interest rates could have a material negative impact on our interest expense, both with respect to the credit agreement governing our Revolving Facility and new issuances of commercial paper notes or other indebtedness.

Our diverse teams are a competitive advantage, and we proactively seek ways to continue investing in their development.

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 quarter of 2022.

To further enhance shareholder returns, we repurchased shares of our common stock and paid quarterly cash dividends in the first half of 2022.

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

11 unchanged sentences

We use these measures to maximize profitability and for decisions about the allocation of resources.

Highlights of our 2022 first quarter results of operations, compared to the 2021 first quarter, and our financial condition at April 29, 2022 are set forth below.

Highlights of our 2022 second quarter results of operations, compared to the 2021 second quarter, and our financial condition at July 29, 2022, are set forth below.

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

● Net sales increased 4.2% to $8.75 billion due to new stores, while sales in same-stores decreased 0.1%.

Average sales per square foot for all stores over the 52-week period ended April 29, 2022 was $260.

● Gross profit, as a percentage of net sales, was 31.3% in the 2022 period and 32.8% in the 2021 period, a decrease of 151 basis points, primarily reflecting an increased proportion of sales of products in our consumables category and an increased LIFO provision.

● SG&A expense, as a percentage of net sales, was 22.8% in the 2022 period compared to 22.0% in the 2021 period, an increase of 78 basis points, primarily due to higher retail labor and store occupancy costs as a percentage of net sales.

● Operating profit decreased 17.9% to $746.2 million in the 2022 period compared to $908.9 million in the 2021 period.

● Interest expense decreased by $0.7 million in the 2022 period.

● The effective income tax rate for the 2022 period was 21.8% compared to a rate of 22.0% for the 2021 period, primarily due to the decrease in income before income taxes while rate impacting items remained materially the same.

● Net sales increased 9.0% to $9.43 billion driven by new stores and sales in same-stores, which increased 4.6%.

Average sales per square foot for all stores over the 52-week period ended July 29, 2022 was $263.

● Gross profit, as a percentage of net sales, was 32.3% in the 2022 period and 31.6% in the 2021 period, an increase of 69 basis points, primarily reflecting higher inventory markups.

● SG&A expense, as a percentage of net sales, was 22.6% in the 2022 period compared to 21.8% in the 2021 period, an increase of 82 basis points, primarily due to higher retail labor and repairs and maintenance costs as a percentage of net sales.

● Operating profit in creased 7.5% to $913.4 million in the 2022 period compared to $849.6 million in the 2021 period.

● Interest expense increased by $3.7 million in the 2022 period driven by higher average borrowings.

● The effective income tax rate for the 2022 period was 22.1% compared to a rate of 21.4% for the 2021 period, primarily due to a reduced benefit from stock-based compensation partially offset by a lower effective state income tax rate .

● Net income was $678.0 million, or $2.98 per diluted share, in the 2022 period compared to net income of $637.0 million, or $2.69 per diluted share, in the 2021 period.

Highlights of the year-to-date period of 2022 include:

● Cash generated from operating activities was $948.0 million for the 2022 period, a decrease of $369.5 million, or 28.0%, from the comparable 2021 period due primarily to increased inventory purchases.

1 unchanged sentence

● Inventory turnover was 4.1 times on a rolling four-quarter basis.

On a per store basis, inventories at April 29, 2022 increased by 13.3% compared to the balances at April 30, 2021.

On a per store basis, inventories at July 29, 2022 increased by 25.1% compared to the balances at July 30, 2021.

The above discussion is a summary only.

Readers should refer to the detailed discussion of our results of operations below in the current year period as compared with the prior year period as well as our financial condition at April 29, 2022.

Results of Operations

1 unchanged sentence

We utilize a 52-53 week fiscal year convention that ends on the Friday nearest to January 31.

The following text contains references to years 2022 and 2021, which represent the 53-week fiscal year ending February 3, 2023 and the 52-week fiscal year ended January 28, 2022, respectively.

References to the first

quarter accounting periods for 2022 and 2021 contained herein refer to the 13-week accounting periods ended April 29, 2022 and April 30, 2021, respectively.

The following text contains references to years 2022 and 2021, which represent the 53-week fiscal year

ending February 3, 2023 and the 52-week fiscal year ended January 28, 2022, respectively.

References to the second quarter accounting periods for 2022 and 2021 contained herein refer to the 13-week accounting periods ended July 29, 2022 and July 30, 2021, respectively.

The nature of our business is somewhat seasonal.

5 unchanged sentences

government’s response thereto, including economic stimulus legislation, has 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 13-week periods of 2022 and 2021, and the dollar and percentage variances among those periods:

The following table contains results of operations data for the second 13-week periods and the 26-week periods of 2022 and 2021, and the dollar and percentage variances among those periods:

13 Weeks Ended

26 Weeks Ended

(amounts in millions, except

21 unchanged sentences

Diluted earnings per share

13 WEEKS ENDED APRIL 29, 2022 AND APRIL 30, 2021

The net sales increase in the 2022 period was primarily due to sales from new stores, partially offset by a same-store sales decrease of 0.1% compared to the 2021 period as well as the impact of store closures.

We believe the effect of the U.S.

government’s response to the COVID-19 pandemic, including economic stimulus legislation, affected consumer behavior and had a positive effect on net sales in the 2021 period, which affects the comparisons between periods.

13 WEEKS ENDED JULY 29, 2022 AND JULY 30, 2021

The net sales increase in the 2022 period was primarily due to sales from new stores, as well as a same-store sales increase of 4.6% compared to the 2021 period, partially offset by the impact of store closures.

For the 2022 period, there were 17,397 same-stores which accounted for sales of $9.0 billion.

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

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

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

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

Gross Profit.

For the 2022 period, gross profit decreased by 0.6%, and as a percentage of net sales decreased by 151 basis points to 31.3%, compared to the 2021 period.

For the past several 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.

However, beginning in early 2020 and continuing through early 2021, our non-consumables sales increased at a higher rate than consumables sales, altering the sales mix between consumables and non-consumables categories.

Since that time, our sales growth and mix have shifted back to consumables, which contributed to the decrease in the gross profit rate in the current period.

In addition, an increased LIFO provision, increased transportation costs, an increase in markdowns as a percentage of sales and increased distribution costs were key factors contributing to the decrease in the gross profit rate along with an increase in inventory damages.

These factors were partially offset by higher inventory markups.

For the 2022 period, gross profit increased by 11.3%, and as a percentage of net sales increased by 69 basis points to 32.3%, compared to the 2021 period, driven primarily by higher inventory markups which were partially offset by an increased LIFO provision.

Our consumables category generally has a lower gross profit rate than

our other product categories.

In the current period, consumables sales increased at a greater rate than non-consumables sales, which also partially offset the increase in the gross profit rate in the current period, along with increased markdowns, increased transportation costs, increased distribution costs, and an increase in inventory damages.

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

SG&A was 22.6% as a percentage of net sales in the 2022 period compared to 21.8% in the comparable 2021 period, an increase of 82 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 and utilities, partially offset by reductions in incentive compensation and winter storm related disaster expenses.

The primary expenses that were a greater percentage of net sales in the current year period were retail labor, repairs and maintenance, utilities and payroll taxes.

Interest Expense .

Interest expense decreased by $0.7 million to $39.7 million in the 2022 period primarily due to lower interest rates.

Interest expense increased by $3.7 million to $43.1 million in the 2022 period primarily due to higher outstanding borrowings.

Income Taxes.

The effective income tax rate for the 2022 period was 21.8% compared to a rate of 22.0% for the 2021 period which represents a net decrease of 0.2 percentage points.

The tax rate for the 2022 period was lower than the comparable 2021 period primarily due to a decrease in pre-tax earnings in the 2022 period compared to the 2021 period while rate impacting items, such as the benefits from stock-based compensation and federal tax credits, remained materially the same in amount in both the 2022 and 2021 periods.

The effective income tax rate for the 2022 period was 22.1% compared to a rate of 21.4% for the 2021 period which represents a net increase of 0.7 percentage points.

The tax rate for the 2022 period was higher than the comparable 2021 period primarily due to a reduced benefit from stock-based compensation partially offset by a lower effective state income tax rate in the 2022 period when compared to the 2021 period.

26 WEEKS ENDED JULY 29, 2022 AND JULY 30, 2021

The net sales increase in the 2022 period was primarily due to sales from new stores, as well as a same-store sales increase of 2.3% compared to the 2021 period, partially offset by the impact of store closures.

For the 2022 period, there were 17,397 same-stores which accounted for sales of $17.3 billion.

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

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

Gross Profit.

For the 2022 period, gross profit increased by 5.3%, and as a percentage of net sales decreased by 39 basis points to 31.8%, compared to the 2021 period.

An increased LIFO provision, consumables sales increasing at a greater rate than non-consumables sales in the current year period, increased transportation costs, increased markdowns, higher distribution costs and increased inventory damages each contributed to the decrease in the gross profit rate.

These factors were partially offset by higher inventory markups.

Selling, General & Administrative Expenses.

SG&A was 22.7% as a percentage of net sales in the 2022 period compared to 21.9% in the comparable 2021 period, an increase of 80 basis points.

The primary expenses that were a higher percentage of net sales in the current year period were retail labor, utilities, repairs and maintenance, store occupancy costs, and depreciation and amortization, partially offset by reductions in incentive compensation and winter storm related disaster expenses.

Interest Expense .

Interest expense increased by $3.0 million to $82.8 million in the 2022 period primarily due to higher outstanding debt balances.

Income Taxes.

The effective income tax rate for the 2022 period was 22.0% compared to a rate of 21.7% for the 2021 period which represents a net increase of 0.3 percentage points.

The tax rate for the 2022 period was higher than the comparable 2021 period primarily due to reduced benefit from stock-based compensation partially offset by a lower effective state income tax rate in the 2022 period when compared to the 2021 period.

Liquidity and Capital Resources

At April 29, 2022, we had a $2.0 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 $2.0 billion.

At April 29, 2022, we had total consolidated outstanding long-term obligations, including current portion, of $4.8 billion, most of which was in the form of senior notes.

At July 29, 2022, we had a $2.0 billion unsecured revolving credit agreement (the “Revolving Facility”), $4.0 billion aggregate principal amount of outstanding senior notes, and a commercial paper program that may provide borrowing availability in the form of commercial paper notes (“CP Notes”) of up to $2.0 billion.

At July 29, 2022, we had total consolidated outstanding long-term obligations, including current portion, of $5.2 billion.

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.

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.

4 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 April 29, 2022 was 1.015% for LIBOR borrowings and 0.015% for base-rate borrowings.

The credit agreement governing the Revolving Facility includes customary LIBOR replacement provisions.

The applicable interest rate margin for borrowings as of July 29, 2022 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 April 29, 2022, the facility fee rate was 0.11%.

As of July 29, 2022, 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 April 29, 2022, we were in compliance with all such covenants.

As of July 29, 2022, we were in compliance with all such covenants.

The Revolving Facility also contains customary events of default.

As of April 29, 2022, under the Revolving Facility, we had no outstanding borrowings, outstanding letters of credit of $1.3 million, and borrowing availability of approximately $2.0 billion that, due to our intention to maintain borrowing availability related to the commercial paper program described below, could contribute incremental liquidity of $1.0 billion at April 29, 2022.

In addition, as of April 29, 2022 we had outstanding letters of credit of $46.8 million which were issued pursuant to separate agreements.

As of July 29, 2022, under the Revolving Facility, we had no outstanding borrowings, outstanding letters of credit of $1.3 million, and borrowing availability of approximately $2.0 billion that, due to our intention to maintain borrowing availability related to the commercial paper program described below, could contribute incremental liquidity of $0.7 billion at July 29, 2022.

In addition, as of July 29, 2022 we had outstanding letters of credit of $45.9 million which were issued pursuant to separate agreements.

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 April 29, 2022, our condensed consolidated balance sheet reflected outstanding unsecured CP Notes of $759.6 million, which had a weighted average borrowing rate of 0.65%.

CP Notes totaling $242.0 million were held by a wholly-owned subsidiary and are therefore not reflected on the condensed consolidated balance sheet.

As of July 29, 2022, our condensed consolidated balance sheet reflected outstanding unsecured CP Notes of $1.1 billion, which had a weighted average borrowing rate of 2.23%.

CP Notes totaling $192.0 million were held by a wholly-owned subsidiary and are therefore not reflected on the condensed consolidated balance sheet at July 29, 2022.

We expect that short-term interest rates will continue to increase during the remainder of 2022 and, as a result of anticipated higher borrowings, including our increased use of CP Notes and higher short-term interest rates, that interest expense for 2022 will notably increase as compared to 2021.

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.

1 unchanged sentence

In April 2017 we issued $600.0 million aggregate principal amount of 3.875% senior notes due 2027 (the “2027 Senior Notes”) at a discount of $0.4 million, which are scheduled to mature on April 15, 2027.

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 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.

9 unchanged sentences

Current Financial Condition / Recent Developments

Our inventory balance represented approximately 54% of our total assets exclusive of operating lease assets, goodwill and other intangible assets as of April 29, 2022.

Our inventory balance represented approximately 56% of our total assets exclusive of operating lease assets, goodwill and other intangible assets as of July 29, 2022.

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

1 unchanged sentence

Efficient management of our inventory has been and continues to be an area of focus for us.

As discussed in Note 7 to the unaudited condensed consolidated financial statements, we are involved in various legal matters, some of which could potentially result in material cash payments.

From time to time, we are involved in various legal matters as discussed in Note 7 to the unaudited condensed consolidated financial statements, some of which could potentially result in material cash payments.

Adverse developments in these matters could materially and adversely affect our liquidity.

4 unchanged sentences

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

Unless otherwise noted, all references to the 2022 and 2021 periods in the discussion of cash flows from operating, investing and financing activities below refer to the 13-week periods ended April 29, 2022 and April 30, 2021, respectively.

Unless otherwise noted, all references to the 2022 and 2021 periods in the discussion of cash flows from operating, investing and financing activities below refer to the 26-week periods ended July 29, 2022 and July 30, 2021, respectively.

Cash flows from operating activities.

Cash flows from operating activities were $948.0 million in the 2022 period, which represents a $369.5 million decrease compared to the 2021 period.

Changes in merchandise inventories, resulted in a $538.9 million decrease in the 2022 period as compared to an increase of $135.7 million in the 2021 period, representing a significant contributor to the reduction in cash flows from operating activities as further discussed below.

Changes in accounts payable resulted in a $172.1 million increase in the 2022 period compared to a $295.2 million decrease in the 2021 period, due primarily to the timing of inventory receipts and payments.

Changes in accrued expenses and other liabilities resulted in a $116.4 million decrease in the 2022 period compared to a $136.7 million decrease in the 2021 period.

Changes in merchandise inventories, resulted in a $1.5 billion decrease in the 2022 period as compared to a decrease of $80.0 million in the 2021 period, representing a significant contributor to the reduction in cash flows from operating activities as further discussed below.

Changes in accounts payable resulted in a $622.3 million increase in the 2022 period compared to a $245.4 million decrease in the 2021 period, due primarily to the timing of inventory purchases, receipts and payments.

Changes in accrued expenses and other liabilities resulted in a $22.4 million increase in the 2022 period compared to a $25.5 million decrease in the 2021 period.

Net income decreased $84.1 million in the 2022 period compared to the 2021 period.

1 unchanged sentence

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.

Total merchandise inventories increased by 8% in the 2022 period and decreased by 3% in the 2021 period, with changes in our four inventory categories as follows:

consumables increased by 5% compared to an 1% decrease;

Total merchandise inventories increased by 24% in the 2022 period and increased by 1% in the 2021 period, with changes in our four inventory categories as follows:

consumables increased by 16% compared to a 1% increase;

seasonal increased 37% compared to a 1% decrease;

home products increased by 23% compared to a 3% decrease;

home products increased by 51% compared to a 14% increase;

and apparel was unchanged compared to a 15% decrease.

9 unchanged sentences

$248 million for improvements, upgrades, remodels and relocations of existing stores;

$74 million related to store facilities, primarily for leasehold improvements, fixtures and equipment in new stores;

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

$125 million related to store facilities, primarily for leasehold improvements, fixtures and equipment in new stores;

and $19 million for information systems upgrades and technology-related projects.

11 unchanged sentences

Cash flows from financing activities .

Net commercial paper borrowings increased by $705.3 million in the 2022 period and were unchanged in the 2021 period.

Net commercial paper borrowings increased by $1.0 billion in the 2022 period and increased by $18.4 million in the 2021 period.

Also during the 2022 and 2021 periods, we repurchased 4.9 million and 8.3 million shares of our common stock at a total cost of $1.1 billion and $1.7 billion, respectively, and paid cash dividends of $249.5 million and $198.1 million, respectively.

Share Repurchase Program

As of April 29, 2022 our common stock repurchase program had a total remaining authorization of approximately $1.38 billion.

As of July 29, 2022 our common stock repurchase program had a total remaining authorization of approximately $1.03 billion.

Effective August 24, 2022, our Board of Directors authorized a $2.0 billion increase to such program which resulted in a total remaining authorization of approximately $3.03 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