What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-24 compared with 2020-08-27 · 205 added, 193 removed, 210 unchanged (65% of the section changed)

7 unchanged sentences

The potential effect of general business or economic conditions on our business, including the COVID-19 pandemic-related recession, consumer spending levels, unemployment and the cost of COVID-19 initiatives;

The uncertainty of the future impact of the COVID-19 pandemic and public health measures on our business and results of operations, including uncertainties surrounding the physical and financial health of our customers, the effectiveness and duration of government assistance programs to individuals, households and businesses to support consumer spending, levels of foot traffic in our stores, changes in customer demand for our consumable and essential products as well as our discretionary products, and possible disruptions in our supply chain or sources of supply;

The uncertainty of the future impact of the COVID-19 pandemic and public health measures on our business and results of operations, including uncertainties surrounding possible disruptions in our supply chain or sources of supply, the physical and financial health of our customers, the effectiveness and duration of government assistance programs to individuals, households and businesses to support consumer spending, levels of foot traffic in our stores, and changes in customer demand for our consumable and essential products as well as our discretionary products;

Our plans and expectations in response to the COVID-19 pandemic, including increased expenses for higher wages and bonuses paid to associates and the cost of personal protective equipment and additional cleaning supplies and protocols for the safety of our associates, and expected delays in new store openings;

The impact of trade relations and the ongoing trade dispute between the United States and China, including the actual and potential effect of Section 301 tariffs on Chinese goods imposed by the United States Trade Representative, and other potential impediments to imports;

Our growth plans, including our plans to add, renovate, re-banner, expand, remodel, relocate or close stores and any related costs or charges;

Our costs could increase in the future.

Certain states and local governments have passed laws to increase the minimum wage beginning in 2021 and it is likely that the federal government will consider whether to pass similar legislation next year;

Our plans relating to new store openings, the renovation of Family Dollar stores to the H2 format, and new store concepts such as Dollar Tree Plus!

The expected and possible outcome, costs, and impact of pending or potential litigation, arbitrations, other legal proceedings or governmental actions, including the proceeding by the FDA;

The average size and productivity of our stores, including those to be added in 2020 and beyond;

The effect of our initiatives to renovate Family Dollar stores to the H2 store format and the performance of that format, the sales mix of lower margin consumable and higher margin discretionary merchandise in Dollar Tree and Family Dollar stores, including an increase in the number of stores with freezers and coolers, and the roll-out of adult beverages at Family Dollar and Snack Zone and Crafter’s Square at Dollar Tree, on our results of operations;

The effect of our initiatives to renovate Family Dollar stores to the H2 store format and the performance of that format and the roll-out of adult beverages at Family Dollar and Snack Zone and Crafter’s Square at Dollar Tree, on our results of operations;

Our seasonal sales patterns and customer demand including those relating to the important holiday selling seasons and party merchandise;

The reliability of, and cost associated with, our sources of supply, particularly imported goods such as those sourced from China and domestic goods which are in higher demand as a result of the COVID-19 pandemic;

Our expectations regarding compliance with debt covenants and our stock repurchase program.

Our expectations regarding compliance with debt covenants and stock repurchases.

A forward-looking statement is neither a prediction nor a guarantee of future results, events or circumstances.

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Our forward-looking statements are all based on currently available operating, financial and business information.

The outcome of the events described in these forward-looking statements is subject to a variety of factors, including, but not limited to, the risks and uncertainties summarized below and the more detailed discussions in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections and elsewhere in our Annual Report on Form 10-K for the fiscal year ended February 1, 2020 , our Quarterly Report on Form 10-Q for the quarterly period ended May 2, 2020, and in this Quarterly Report on Form 10-Q.

The continuing COVID-19 pandemic and related public health measures have caused economic disruptions that have adversely affected, and are expected to continue to adversely affect, elements of our business.

If the COVID-19 pandemic worsens and new, more restrictive public health measures are implemented, there could be a material adverse impact on our business and results of operations.

Our business and results of operations could be materially harmed if we experience a decline in consumer confidence and spending as a result of a deepening pandemic-related recession or political uncertainties, for example because government stabilization efforts terminate or are reduced prematurely.

Our business and results of operations could be materially harmed if we experience a decline in consumer confidence and spending as a result of unfavorable economic conditions or political uncertainties, for example because government stabilization efforts terminate or are reduced prematurely.

Our profitability is vulnerable to cost increases such as wages.

For example, this year we have incurred increased costs associated with responding to the COVID-19 pandemic;

and this year and over the last several years we have incurred increased distribution costs and shrink costs.

and this year and over the last several years we have incurred increased distribution costs.

Next year the minimum wage will increase in certain States and localities and may increase nationally depending on the outcome of future legislation proposed in Congress.

Our profitability is affected by the mix of products we sell.

1 unchanged sentence

We could continue to encounter higher costs and disruptions in our distribution network.

COVID-19 and other factors have slowed the flow of imported and other merchandise and could impact our profitability if product flow is not improved.

Our financial performance could be adversely affected if our supply chain is affected or disrupted by changes in United States trade policy with China, including tariffs or restrictions on trade affecting our foreign suppliers, or by disruptions arising from the outbreak of the COVID-19 pandemic.

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We have experienced fewer customer visits and higher average ticket.

The mix and profit margin of products being purchased by our customers has been different and has changed during the first half of 2020.

As demand for essential goods, including cleaning supplies and sanitizer, household products, paper goods, food and over-the-counter medicine, increased to unprecedented levels, both our domestic suppliers and distribution centers were stressed to keep up with the

The mix and profit margin of products being purchased by our customers has been different and has changed during 2020.

As demand for essential

goods, including cleaning supplies and sanitizer, household products, paper goods, food and over-the-counter medicine, increased to unprecedented levels, both our domestic suppliers and distribution centers were stressed to keep up with the demand.

We expect this disruption with certain vendors and SKUs to continue for the remainder of the year.

The effect of COVID-19-related stimulus purchases for some other non-essential items may create additional disruptions.

The balance of our product, including imports, continues to operate as we planned.

We have hired more than 34,000 net new associates since early March and we have implemented several changes to support our associates in adhering to Centers for Disease Control and Prevention (CDC) recommendations.

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Deployed plexiglass sneeze guards for all registers at all stores;

Deployed hand sanitizer stands in each of our stores;

Equipped stores, distribution centers and the store support center with necessary supplies for enhanced cleaning protocol;

Provided a $2 per hour wage premium for all store and distribution center hourly associates, excluding hourly-paid store managers;

Provided wage premiums for all store and distribution center hourly associates, excluding hourly-paid store managers;

Provided minimum guaranteed sales bonuses for each store manager as well as Thank You bonuses and bonuses for certain salaried associates in our field operations and distribution centers;

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Established temperature check protocols for our associates at all distribution centers and the store support center.

We also made changes to reduce our exposure to potential short-term liquidity risk in the banking system, including preemptively drawing $750 million under our Revolving Credit Facility, of which $250 million was repaid in the second quarter, and suspending share repurchases under the remaining $800 million of Board authorization.

We also made changes to reduce our exposure to potential short-term liquidity risk in the banking system, including preemptively drawing $750 million under our Revolving Credit Facility, and suspending share repurchases under the remaining Board authorization.

Based on our second and third quarter cash flow as well as our projected cash flow and the outlook for liquidity in the banking system for the balance of fiscal 2020, the $750 million was repaid prior to October 31, 2020 and we restarted share repurchases during the third quarter.

We are in compliance with our debt covenants and, based on a continuation of current operating results, we expect to be in compliance for the remainder of fiscal 2020.

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In the 13 weeks ended August 1, 2020, enterprise comparable store net sales increased 7.2% resulting from an increase in average ticket of 24.7%, partially offset by a decrease in traffic of 14.0%.

In the 13 weeks ended October 31, 2020, enterprise comparable store net sales increased 5.1% resulting from an increase in average ticket of 20.1% partially offset by a decrease in traffic of 12.5%.

The future impact of COVID-19 on our customers is difficult to predict as the effectiveness of economic stabilization efforts is uncertain and government assistance payments may not provide enough funding to support current spending and the incremental unemployment benefits lapsed on July 31, 2020.

It is uncertain whether additional government assistance or unemployment benefits and

other economic assistance to individuals, states, and localities will be authorized by governments or the timing and amount of such benefits.

In addition, we cannot predict the impact of the spread of COVID-19 on the health and well-being of our customers and associates.

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During the 13 weeks ended August 1, 2020, the higher demand for discretionary products continued in both our Dollar Tree and Family Dollar segments resulting in a reduction in our merchandise cost compared with the same period in 2019.

The favorable mix change has continued into the third quarter of 2020;

however, the benefit is not as high as we experienced during the second quarter of 2020.

Our distribution costs included $6.4 million and $11.4 million in the 13 weeks ended May 2, 2020 and the 13 weeks ended August 1, 2020, respectively, of incremental wage premiums in recognition of the team’s extraordinary efforts.

The incremental wage premium payments will continue for at least the first eight weeks of the third quarter of 2020.

The favorable mix change continued into the third quarter of 2020;

however, the benefit was not as high on the Family Dollar segment as we experienced during the second quarter of 2020.

Sales of Dollar Tree’s discretionary goods typically peak in the fourth quarter.

Should sales volumes be lower than planned, our gross profit in the Dollar Tree segment would be negatively impacted as it was with Easter merchandise in the first quarter.

Our distribution costs included $6.4 million, $11.4 million and $10.9 million in the 13 weeks ended May 2, 2020, August 1, 2020, and October 31, 2020, respectively, of incremental wage premiums in recognition of the team’s extraordinary efforts.

We expect the incremental wage premium payments to continue for at least the first nine weeks of the fourth quarter of 2020.

During the COVID-19 pandemic, the trade dispute between the United States and China is ongoing and should additional tariffs or other sanctions be imposed on imported goods, our business or results of operations in fiscal 2020 could be adversely affected.

Selling, General and Administrative Expenses

We paid incremental wage premiums to our hourly store associates, minimum guaranteed bonuses and a Thank You bonus to our store managers and other bonuses to certain field operations managers totaling $57.5 million and $114.6 million in the 13 weeks ended May 2, 2020 and the 13 weeks ended August 1, 2020, respectively.

The incremental wage premium payments were reduced from $2 per hour to $1 per hour beginning in the third quarter of 2020 and will continue for at least the first eight weeks of the third quarter.

We paid incremental wage premiums to our hourly store associates, minimum guaranteed bonuses and a Thank You bonus to our store managers and other bonuses to certain field operations managers totaling $57.5 million, $114.6 million and $28.9 million in the 13 weeks ended May 2, 2020, August 1, 2020, and October 31, 2020, respectively.

The incremental wage premium payments were reduced from $2 per hour to $1 per hour beginning in the third quarter of 2020 and continued for the first eight weeks of the third quarter.

In addition, for the safety of our associates and customers, in the first quarter of 2020 we installed plexiglass sneeze guards at all registers in our stores and incurred incremental costs for masks, gloves and cleaning supplies.

These expenses totaled $8.9 million and $7.8 million in the 13 weeks ended May 2, 2020 and the 13 weeks ended August 1, 2020, respectively.

In the third quarter of 2020, we installed hand sanitizer stands in all of our stores.

These expenses totaled $9.1 million, $8.1 million and $6.3 million in the 13 weeks ended May 2, 2020, August 1, 2020, and October 31, 2020, respectively.

Store Openings and Initiatives

During the first half of fiscal 2020, we opened 167 new Dollar Tree stores and 63 new Family Dollar stores;

During the first three quarters of fiscal 2020, we opened 262 new Dollar Tree stores and 111 new Family Dollar stores;

however, we have experienced construction-related delays due to challenges with the permitting process which has resulted in delays in our planned store openings.

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As a result of the complications inherent in operating our stores during the COVID-19 pandemic, during the first quarter of 2020, we paused the roll-out of our Snack Zone layout to our Dollar Tree stores.

We resumed the installation of our Snack Zone layout to Dollar Tree stores during the second quarter of 2020 and we plan to add this assortment to 300 Dollar Tree stores in fiscal 2020.

We resumed the installation of our Snack Zone layout to Dollar Tree stores during the second quarter of 2020 and we completed the installation of this assortment in approximately 300 Dollar Tree stores in fiscal 2020.

With the increase in customer activity in our Family Dollar stores and COVID-19-related travel restrictions, we paused the roll-out of our H2 stores during the first quarter of 2020, but resumed the roll-out of the H2 format to Family Dollar stores during the second quarter of 2020.

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Stores that have been re-bannered are considered to be new stores and are not included in the calculation of the comparable store net sales change until after the first fifteen months of operation under the new brand.

At August 1, 2020 , we operated stores in 48 states and the District of Columbia, as well as stores in five Canadian provinces.

A breakdown of store counts and square footage by segment for the 26 weeks ended August 1, 2020 and August 3, 2019 is as follows:

At October 31, 2020 , we operated stores in 48 states and the District of Columbia, as well as five Canadian provinces.

A breakdown of store counts and square footage by segment for the 39 weeks ended October 31, 2020 and November 2, 2019 is as follows:

39 Weeks Ended

August 1, 2020

August 3, 2019

October 31, 2020

November 2, 2019

Family Dollar

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Comparable store net sales for Dollar Tree may be negatively affected when a Family Dollar store is re-bannered near an existing Dollar Tree store.

The average size of stores opened during the 26 weeks ended August 1, 2020 was approximately 8,690 selling square feet for the Dollar Tree segment and 8,130 selling square feet for the Family Dollar segment.

The average size of stores opened during the 39 weeks ended October 31, 2020 was approximately 8,670 selling square feet for the Dollar Tree segment and 8,430 selling square feet for the Family Dollar segment.

We believe that these size stores are in the ranges of our optimal sizes operationally and give our customers a shopping environment which invites them to shop longer, buy more and make return visits.

The percentage change in comparable store net sales on a constant currency basis for the 13 and 26 weeks ended August 1, 2020 , as compared with the preceding year, is as follows:

13 Weeks Ended August 1, 2020

26 Weeks Ended August 1, 2020

The percentage change in comparable store net sales on a constant currency basis for the 13 and 39 weeks ended October 31, 2020 , as compared with the preceding year, is as follows:

13 Weeks Ended October 31, 2020

39 Weeks Ended October 31, 2020

Customer Traffic

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We believe comparable store net sales continue to be positively affected by our Dollar Tree initiatives.

We continued the roll-out of frozen and refrigerated merchandise to more of our Dollar Tree stores in the second quarter of 2020 and as of August 1, 2020 , the Dollar Tree segment had frozen and refrigerated merchandise in approximately 6,300 stores compared to approximately 5,970 stores at August 3, 2019 .

We continued the roll-out of frozen and refrigerated merchandise to more of our Dollar Tree stores in the third quarter of 2020 and as of October 31, 2020 , the Dollar Tree segment had frozen and refrigerated merchandise in approximately 6,365 stores compared to approximately 6,100 stores at November 2, 2019 .

Beginning in fiscal 2018, we rolled out a new layout to a number of our Dollar Tree stores, which we call our Snack Zone.

This layout highlights our immediate consumption snack offerings in the front of the store near the checkout areas.

As of August 1, 2020 , we

have Snack Zone in approximately 2,530 Dollar Tree stores.

As of October 31, 2020 , we have Snack Zone in 2,660 Dollar Tree stores.

In fiscal 2019, we introduced our Crafter’s Square initiative in more than 650 stores.

This section includes a new expanded assortment of arts and crafts supplies.

We have begun expanding this program and have rolled it out to more than 3,100 stores as of August 1, 2020 .

We plan to include Crafter’s Square in additional stores in the future.

We have begun expanding this program and have rolled it out to more than 3,130 stores as of October 31, 2020 .

We plan to add Crafter’s Square to the remainder of our Dollar Tree stores in early 2021.

Additionally, for more than a year, we have tested a multi-price initiative referred to as Dollar Tree Plus!

Beginning in fiscal 2019, we began testing multi-price assortments in more than 100 stores in southwestern markets.

Using the results of the test, we have made modifications to:

the mix of products offered to include primarily discretionary items;

the displays and signage to drive awareness and excitement in the stores;

the price points to focus on the $1, $3 and $5 price points;

and increase the offerings above the $1 price point.

We plan to expand this initiative into a total of 500 stores beginning in the Spring of 2021.

We believe these initiatives have and will continue to enable us to increase sales and earnings.

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H2 stores perform well in a variety of locations and especially in locations where our Family Dollar stores have been most challenged in the past.

As of August 1, 2020 , we have approximately 1,790 H2 stores.

We plan to renovate approximately 750 stores to the H2 format in fiscal 2020.

In addition, we installed adult beverage product in approximately 250 stores in the first half of 2020 and plan to add it to approximately 570 more stores in 2020.

As of October 31, 2020 , we have approximately 2,240 H2 stores.

We plan to renovate approximately 750 stores to the H2 format in fiscal 2020 and an additional 1,250 stores in fiscal 2021.

In addition, we installed adult beverage product in approximately 470 stores through the third quarter of 2020 and plan to add it to approximately 150 more stores in 2020.

We believe the addition of adult beverage to our assortment will drive traffic to our stores.

In 2021, the minimum wage will increase in certain States and localities and may increase nationally depending on the outcome of future legislation proposed in Congress.

The currently scheduled minimum wage increases are estimated to increase store payroll by $45.0 million to $50.0 million in 2021, which is less than the COVID-19-related payroll increases in 2020.

Minimum wage increases could impact our results of operations in the future.

Results of Operations

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Comparable store net sales change,

The increase in net sales in the 13 weeks ended August 1, 2020 was a result of comparable store net sales increases in both the Family Dollar and Dollar Tree segments and sales of $212.3 million at new stores.

These sales increases were partially offset by lost sales resulting from store closures during fiscal 2019 in connection with our Family Dollar segment store optimization program.

Enterprise comparable store net sales increased 7.2% on a constant currency basis in the 13 weeks ended August 1, 2020, as a result of a 24.7% increase in average ticket and a 14.0% decrease in customer traffic.

on a constant currency basis

The increase in net sales in the 13 weeks ended October 31, 2020 was a result of comparable store net sales increases in both the Family Dollar and Dollar Tree segments and sales of $194.3 million at new stores.

Enterprise comparable store net sales increased 5.1% on a constant currency basis in the 13 weeks ended October 31, 2020, as a result of a 20.1% increase in average ticket and a 12.5% decrease in customer traffic.

Comparable store net sales increased the same 5.1% when including the impact of Canadian currency fluctuations.

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Comparable store net sales are positively affected by our expanded and relocated stores, which we include in the calculation, and are negatively affected when we open new stores, re-banner stores or expand stores near existing stores.

The increase in net sales in the 26 weeks ended August 1, 2020 was a result of comparable store net sales increases in the Family Dollar and Dollar Tree segments and sales of $447.0 million at new stores.

The increase in net sales in the 39 weeks ended October 31, 2020 was a result of comparable store net sales increases in the Family Dollar and Dollar Tree segments and sales of $641.3 million at new stores.

These sales increases were partially offset by lost sales resulting from store closures during fiscal 2019 in connection with our Family Dollar segment store optimization program.

Enterprise comparable store net sales increased 7.1% on a constant currency basis in the 26 weeks ended August 1, 2020, as a result of a 20.0% increase in average ticket and a 10.8% decrease in customer traffic.

Comparable store net sales increased the same 7.1% when including the impact of Canadian currency fluctuations.

Enterprise comparable store net sales increased 6.5% on a constant currency basis in the 39 weeks ended October 31, 2020, as a result of a 20.1% increase in average ticket and a 11.3% decrease in customer traffic.

Comparable store net sales increased 6.4% when including the impact of Canadian currency fluctuations.

On a constant currency basis, comparable store net sales increased 11.2% in the Family Dollar segment and 2.1% in the Dollar Tree segment.

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Gross profit margin

The increase in gross profit margin in the 13 weeks ended August 1, 2020 was a result of the following:

Merchandise cost, including freight, decreased approximately 120 basis points resulting from higher sales of higher margin discretionary merchandise, improved initial mark-on and lower freight costs, partially offset by incremental tariffs of approximately $10.8 million.

Occupancy costs decreased approximately 55 basis points as a result of the leverage from the increase in comparable store net sales.

Markdown costs decreased approximately 40 basis points resulting primarily from the prior year including markdowns related to Family Dollar store closures and clearance sales and lower promotional activity in the current year on the Family Dollar segment as a result of the increase in sales.

Partially offsetting this decrease was $9.8 million of uninsured markdown costs for stores affected by civil unrest.

Shrink costs decreased approximately 15 basis points resulting from favorable inventory reconciliations on the Family Dollar segment in the current quarter, partially offset by unfavorable inventory reconciliations on the Dollar Tree segment.

Distribution costs increased approximately 45 basis points resulting primarily from higher distribution center payroll and depreciation costs.

We paid our hourly distribution center associates a $2 per hour premium for all hours worked during the 13 weeks ended August 1, 2020.

Total distribution center COVID-19-related expenses were approximately $11.4 million, or 20 basis points of this increase.

The increase in gross profit margin in the 26 weeks ended August 1, 2020 was a result of the following:

Occupancy costs decreased approximately 50 basis points as a result of the leverage from the increase in comparable store net sales.

Markdown costs decreased approximately 10 basis points resulting primarily from the prior year including markdowns related to Family Dollar store closures and clearance sales and lower promotional activity on the Family Dollar segment as a result of the increase in sales.

This decrease was partially offset by $9.8 million of uninsured markdown costs for stores affected by civil unrest and higher seasonal markdowns in the Dollar Tree segment due to the lower than planned sell-through on Easter merchandise as a result of the COVID-19 pandemic.

Shrink costs decreased approximately 10 basis points resulting from favorable inventory reconciliations on the Family Dollar segment in the current year, partially offset by unfavorable inventory reconciliations on the Dollar Tree segment.

Merchandise cost, including freight, as a percentage of net sales, was consistent in the 26 weeks ended August 1, 2020 and the same period last year.

Incremental tariff costs of approximately $33.8 million and sales of lower margin consumable merchandise were offset by improved initial mark-on and lower freight costs.

Distribution costs increased approximately 35 basis points resulting primarily from higher distribution center payroll and depreciation costs.

The increase in gross profit margin in the 13 weeks ended October 31, 2020 was a result of the net of the following:

Merchandise cost, including freight, decreased 80 basis points resulting from higher sales of higher margin discretionary merchandise, improved initial mark-on for the Family Dollar segment and lower freight costs.

Occupancy costs decreased 35 basis points as a result of the leverage from the increase in comparable store net sales.

Shrink costs decreased 35 basis points resulting primarily from favorable inventory reconciliations on the Family Dollar segment in the current quarter.

Markdown costs decreased 25 basis points resulting primarily from lower promotional activity in the current year on the Family Dollar segment as a result of the increase in sales and lower seasonal markdowns in both segments resulting from the higher Halloween sell-through in the current quarter.

Partially offsetting this decrease was increased uninsured markdown costs for natural disasters.

Distribution costs increased 30 basis points resulting primarily from higher distribution center payroll and depreciation costs.

We paid our hourly distribution center associates a premium for all hours worked during the 13 weeks ended October 31, 2020.

Total distribution center COVID-19-related expenses were $10.9 million, or 20 basis points of this increase.

The increase in gross profit margin in the 39 weeks ended October 31, 2020 was a result of the net of the following:

Occupancy costs decreased 45 basis points as a result of the leverage from the increase in comparable store net sales.

Merchandise cost, including freight, decreased 30 basis points in the 39 weeks ended October 31, 2020 compared to the same period last year resulting from higher sales of higher margin discretionary merchandise, improved initial mark-on and lower freight costs, partially offset by incremental tariff costs of $34.7 million.

Markdown costs decreased 15 basis points resulting primarily from the prior year including markdowns related to Family Dollar store closures and clearance sales as well as lower promotional activity in the current year on the Family Dollar segment as a result of the increase in sales.

This decrease was partially offset by $10.4 million of uninsured markdown costs for stores affected by civil unrest and higher seasonal markdowns in the Dollar Tree segment in the first quarter 2020 due to the lower than planned sell-through on Easter merchandise as a result of the COVID-19 pandemic.

Shrink costs decreased 15 basis points resulting from favorable inventory reconciliations on the Family Dollar segment in the current year, partially offset by unfavorable inventory reconciliations on the Dollar Tree segment.

Distribution costs increased 35 basis points resulting primarily from higher distribution center payroll and depreciation costs.

We paid our hourly distribution center associates a per hour premium for all hours worked since March 8, 2020.

Total distribution center COVID-19-related expenses were approximately $17.8 million, or 15 basis points of this increase.

Total distribution center COVID-19-related expenses were $28.7 million, or 15 basis points of this increase.

Selling, General and Administrative Expenses

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As a percentage of Net sales

The increase in selling, general and administrative expenses, as a percentage of net sales, in the 13 weeks ended August 1, 2020 was a result of the following:

Payroll expenses increased approximately 130 basis points primarily due to incremental costs associated with the COVID-19 pandemic and an increase in incentive compensation and stock compensation costs resulting from improved operating performance in the Family Dollar segment.

These increases were partially offset by leverage from the comparable store net sales increase and decreases in workers’ compensation expenses and benefits costs, as well as lower temporary help expenses as a result of the prior year including higher expenses to support store-level initiatives.

Office payroll costs also decreased resulting from the store support center consolidation in the prior year quarter and other leadership changes made in the fourth quarter of fiscal 2019.

Payroll expenses also included $0.6 million in pay continuation for associates whose stores were closed due to civil unrest.

Incremental payroll costs associated with the COVID-19 pandemic, including a $2 per hour premium paid to all store hourly associates for all hours worked during the 13 weeks ended August 1, 2020, bonuses for certain field management associates, guaranteed bonus payouts and Thank You bonuses for store managers, quarantine pay and sick pay as well as the related payroll taxes, totaled $114.6 million, or approximately 185 basis points.

Other selling, general and administrative expenses decreased approximately 55 basis points as a result of the leverage from the comparable store net sales increase, higher costs in the prior year related to the disposal of fixed assets in connection with the store optimization program on the Family Dollar segment, decreases in promotional advertising on the Family Dollar segment and in travel due to the COVID-19 pandemic and higher costs in the prior year for the store support center consolidation.

These improvements were partially offset by an increase in insurance costs related to unfavorable development of general liability claims.

The 13 weeks ended August 1, 2020 included approximately $8.1 million, or 10 basis points, of costs for masks, gloves and cleaning supplies due to the COVID-19 pandemic and approximately $2.5 million of expenses, primarily for fixed asset disposals, related to stores damaged in civil unrest.

Store facility costs decreased approximately 20 basis points due to leverage from the comparable store net sales increase and lower electricity costs.

The 13 weeks ended August 1, 2020 included approximately $3.9 million, primarily for uninsured repairs, related to stores damaged in civil unrest and approximately $0.9 million of COVID-19-related expenses.

Selling, general and administrative expenses, as a percentage of net sales, was 23.6% in both the 26 weeks ended August 1, 2020 and August 3, 2019.

The changes in selling, general and administrative expenses were as follows:

Payroll expenses increased approximately 80 basis points primarily due to incremental costs associated with the COVID-19 pandemic and an increase in incentive compensation, stock compensation costs and store sales bonuses resulting from improved operating performance in the Family Dollar segment.

These increases were partially offset by leverage from the comparable store net sales increase and decreases in workers’ compensation and benefits costs, as well as lower temporary help expenses as a result of the prior year including higher expenses to support store-level initiatives.

Office payroll costs also decreased resulting from the store support center consolidation in the prior year quarter and other leadership changes made in the fourth quarter of fiscal 2019.

Incremental payroll costs associated with the COVID-19 pandemic, including a $2 per hour premium paid to all store hourly associates for all hours worked since March 8, 2020, bonuses for certain field management associates, guaranteed bonus payouts and Thank You bonuses for store managers, quarantine pay and sick pay as well as the related payroll taxes, totaled $172.1 million, or approximately 135 basis points.

Other selling, general and administrative expenses decreased approximately 45 basis points as a result of the leverage from the comparable store net sales increase, higher costs in the prior year related to the disposal of fixed assets in connection with the store optimization program on the Family Dollar segment, decreases in promotional advertising on the Family Dollar segment and in travel due to the COVID-19 pandemic and higher costs in the prior year for the store support center consolidation.

The increase in selling, general and administrative expenses, as a percentage of net sales, in the 13 weeks ended October 31, 2020 was the result of the net of the following:

Payroll expenses increased 70 basis points primarily due to incremental costs associated with the COVID-19 pandemic and an increase in incentive compensation, stock compensation costs and store sales bonuses resulting from the improved operating performance in the quarter.

These increases were partially offset by leverage from the comparable store net sales increase.

Incremental payroll costs associated with the COVID-19 pandemic, including a $1 per hour premium paid to all store hourly associates for all hours worked during the quarter through September 26, 2020, bonuses for certain field management associates, quarantine pay and sick pay as well as the related payroll taxes, totaled $28.9 million, or 45 basis points.

Other selling, general and administrative expenses decreased 25 basis points as a result of the leverage from the comparable store net sales increase, higher costs in the prior year related to the disposal of fixed assets in connection with the store optimization program on the Family Dollar segment, decreases in promotional advertising on the Family Dollar segment and in travel due to the COVID-19 pandemic.

The 13 weeks ended October 31, 2020 included $6.3 million, or 10 basis points, of costs for masks, gloves and cleaning supplies due to the COVID-19 pandemic.

Store facility costs decreased 20 basis points due to leverage from the comparable store net sales increase and lower electricity costs.

The increase in selling, general and administrative expenses, as a percentage of net sales, in the 39 weeks ended October 31, 2020 was the result of the net of the following:

Payroll expenses increased 75 basis points primarily due to incremental costs associated with the COVID-19 pandemic and an increase in incentive compensation, stock compensation costs and store sales bonuses resulting from improved operating performance in the Family Dollar segment.

These increases were partially offset by leverage from the comparable store net sales increase, lower benefits costs and lower temporary help expenses as a result of the prior year including higher expenses to support store-level initiatives.

Office payroll costs also decreased resulting from the store support center consolidation in the prior year and other leadership changes made in the fourth quarter of fiscal 2019.

Incremental payroll costs associated with the COVID-19 pandemic, including a per hour premium paid to all store hourly associates for all hours worked March 8, 2020 through September 26, 2020, bonuses for certain field management associates, guaranteed bonus payouts and Thank You bonuses for store managers, quarantine pay and sick pay as well as the related payroll taxes, totaled $201.0 million, or 105 basis points.

Other selling, general and administrative expenses decreased 35 basis points as a result of the leverage from the comparable store net sales increase, higher costs in the prior year related to the disposal of fixed assets in connection with the store optimization program on the Family Dollar segment, decreases in promotional advertising on the Family Dollar segment and in travel due to the COVID-19 pandemic and higher costs in the prior year for the store support center consolidation.

These improvements were partially offset by an increase in insurance costs related to unfavorable development of general liability claims.

The 26 weeks ended August 1, 2020 included approximately $17.2 million, or 15 basis points, of costs for the installation of plexiglass sneeze guards at all registers in our stores and incremental costs for masks, gloves and cleaning supplies due to

the COVID-19 pandemic, and approximately $2.5 million of expenses, primarily for fixed asset disposals, related to stores damaged in civil unrest.

Store facility costs decreased approximately 25 basis points due to leverage from the comparable store net sales increase and lower electricity costs.

The 26 weeks ended August 1, 2020 included approximately $3.9 million primarily for uninsured repairs related to stores damaged in civil unrest and approximately $1.0 million of COVID-19-related expenses.

The 39 weeks ended October 31, 2020 included $23.5 million, or 15 basis points, of costs for the installation of plexiglass sneeze guards at all registers in our stores and incremental costs for masks, gloves and cleaning supplies due to the COVID-19 pandemic, and $1.8 million of expenses, primarily for fixed asset disposals, related to stores damaged in civil unrest.

Store facility costs decreased 25 basis points due to leverage from the comparable store net sales increase and lower electricity costs.

The 39 weeks ended October 31, 2020 included $3.9 million primarily for uninsured repairs related to stores damaged in civil unrest and $1.1 million of COVID-19-related expenses.

Operating Income

4 unchanged sentences

Operating income margin

Operating income margin increased to 6.0% for the 13 weeks ended August 1, 2020 compared to 4.7% for the same period last year as operating income margin in the Family Dollar segment increased approximately 470 basis points.

The increase was partially offset by a 170 basis point decrease in the Dollar Tree segment operating income margin.

Operating income in the 13 weeks ended August 1, 2020 includes approximately $134.9 million of COVID-19-related expenses and $16.8 million of uninsured expenses related to civil unrest.

Operating income margin increased to 5.9% for the 26 weeks ended August 1, 2020 compared to 5.7% for the same period last year as operating income margin in the Family Dollar segment increased approximately 350 basis points.

The increase was partially offset by a 300 basis point decrease in the Dollar Tree segment operating income margin.

Operating income in the 26 weeks ended August 1, 2020 includes approximately $208.0 million of COVID-19-related expenses and $16.8 million of uninsured expenses related to civil unrest.

Operating income margin increased to 7.5% for the 13 weeks ended October 31, 2020 compared to 6.2% for the same period last year as operating income margin in the Family Dollar segment increased 250 basis points and the Dollar Tree segment increased 45 basis points.

Operating income in the 13 weeks ended October 31, 2020 includes $46.3 million of COVID-19-related expenses.

Operating income margin increased to 6.4% for the 39 weeks ended October 31, 2020 compared to 5.9% for the same period last year as operating income margin in the Family Dollar segment increased 315 basis points, partially offset by a 175 basis point decrease in the Dollar Tree segment operating income margin.

Operating income in the 39 weeks ended October 31, 2020 includes $254.3 million of COVID-19-related expenses and $17.6 million of uninsured expenses related to civil unrest.

Interest Expense, Net

3 unchanged sentences

Interest expense, net

Interest expense decreased $5.3 million in the 13 weeks ended August 1, 2020 compared to the same period last year, resulting from lower average debt outstanding in the current year quarter compared to the same quarter last year.

Interest expense decreased $6.5 million in the 26 weeks ended August 1, 2020 compared to the same period last year, resulting from lower average debt outstanding in the current year, partially offset by lower interest income.

Interest expense, net decreased $3.3 million in the 13 weeks ended October 31, 2020 compared to the same period last year, resulting from lower average debt outstanding in the current year quarter, partially offset by lower interest income.

Interest expense, net decreased $9.8 million in the 39 weeks ended October 31, 2020 compared to the same period last year, resulting from lower average debt outstanding in the current year, partially offset by lower interest income.

Provision for Income Taxes

4 unchanged sentences

Effective tax rate

The effective tax rate for the 13 weeks ended August 1, 2020 was 23.1% compared to 21.1% for the same period last year.

The 2019 rate reflects a reduction in the reserve for uncertain tax positions resulting from statute expirations of $5.8 million.

The effective tax rate for the 26 weeks ended August 1, 2020 was 23.5% compared to 21.7% for the same period last year.

The 2019 rate reflects a reduction in the reserve for uncertain tax positions resulting from statute expirations of $5.8 million.

The current year rate includes additional tax expense for restricted stock vestings due to the stock price for certain grants being lower at the vest date than the grant date.

The effective tax rate for the 13 weeks ended October 31, 2020 was 22.8% compared to 19.3% for the same period last year.

The 2020 rate reflects higher state tax rates and higher income amounts taxed at the statutory rate.

The 2019 rate reflects a higher benefit from the reconciliation of the filed tax returns to the estimated tax provision.

The effective tax rate for the 39 weeks ended October 31, 2020 was 23.2% compared to 20.8% for the same period last year.

The 2020 rate reflects higher state tax rates, higher income amounts taxed at the statutory rate and additional tax expense for restricted stock vestings due to the stock price for certain grants being lower at the vest date than the grant date.

The 2019 rate reflects a reduction in the reserve for uncertain tax positions resulting from statute expirations and a higher benefit from the reconciliation of the filed tax returns to the estimated tax provision.

Segment Information

3 unchanged sentences

39 Weeks Ended

August 1, 2020

August 3, 2019

August 1, 2020

August 3, 2019

October 31, 2020

November 2, 2019

October 31, 2020

November 2, 2019

(in millions)

Operating income

Net sales for the Dollar Tree segment increased $219.2 million, or 7.4%, for the 13 weeks ended August 1, 2020 , compared to the same period last year.

The increase was due to a 3.1% increase in comparable store net sales and sales from new stores of $150.1 million.

Net sales for the Dollar Tree segment increased $228.9 million, or 7.4%, for the 13 weeks ended October 31, 2020 , compared to the same period last year.

The increase was due to sales from new stores of $131.1 million and a 4.0% increase in comparable store net sales.

Average ticket increased 19.0% and customer traffic declined 12.6%.

Net sales for the Dollar Tree segment increased $337.3 million, or 5.7%, for the 26 weeks ended August 1, 2020 , compared to the same period last year.

Net sales for the Dollar Tree segment increased $566.2 million, or 6.3%, for the 39 weeks ended October 31, 2020 , compared to the same period last year.

The increase was due to sales from new stores of $444.4 million and a 2.1% increase in comparable store net sales.

Average ticket increased 17.9% and customer traffic declined 13.4%.

Gross profit margin for the Dollar Tree segment decreased to 33.7% for the 13 weeks ended August 1, 2020 compared to 33.8% for the same period last year as a result of the net of the following:

Distribution costs increased approximately 70 basis points resulting primarily from higher distribution center payroll and depreciation costs.

We paid our hourly distribution center associates a $2 per hour premium for all hours worked during the 13 weeks ended August 1, 2020.

Total distribution center COVID-19-related expenses were approximately $6.7 million, or 20 basis points of this increase.

Shrink costs increased 15 basis points resulting from unfavorable inventory reconciliations in the current quarter and an increase in the shrink accrual rate.

Markdown costs were flat, as a percentage of net sales, for the 13 weeks ended August 1, 2020 compared to the same period last year as lower store initiated markdowns were offset by $2.8 million of uninsured markdown costs for stores affected by civil unrest.

Merchandise cost, including freight, decreased approximately 65 basis points primarily due to increased sales of higher margin discretionary merchandise, lower freight costs and increased initial mark-on, partially offset by incremental tariffs of approximately $8.2 million.

Occupancy costs decreased approximately 15 basis points resulting primarily from the leverage due to the comparable store net sales increase in the quarter.

Gross profit margin for the Dollar Tree segment decreased to 32.8% for the 26 weeks ended August 1, 2020 compared to 34.1% for the same period last year as a result of the following:

Distribution costs increased approximately 50 basis points resulting primarily from higher distribution center payroll and depreciation costs.

Gross profit margin for the Dollar Tree segment increased to 34.9% for the 13 weeks ended October 31, 2020 compared to 34.2% for the same period last year as a result of the net of the following:

Merchandise cost, including freight, decreased 95 basis points primarily due to increased sales of higher margin discretionary merchandise and lower freight costs, partially offset by lower initial mark-on.

Occupancy costs decreased 20 basis points resulting primarily from the leverage due to the comparable store net sales increase in the quarter.

Shrink costs decreased 10 basis points resulting from favorable inventory reconciliations in the current quarter.

Distribution costs increased 50 basis points resulting primarily from higher distribution center payroll and depreciation costs.

We paid our hourly distribution center associates a per hour premium for all hours worked during the 13 weeks ended October 31, 2020.

Total distribution center COVID-19-related expenses were $6.6 million, or 20 basis points of this increase.

Gross profit margin for the Dollar Tree segment decreased to 33.6% for the 39 weeks ended October 31, 2020 compared to 34.2% for the same period last year as a result of the net of the following:

Distribution costs increased 50 basis points resulting primarily from higher distribution center payroll and depreciation costs.

We paid our hourly distribution center associates a per hour premium for all hours worked since March 8, 2020.

Total distribution center COVID-19-related expenses were approximately $10.3 million, or 15 basis points of this increase.

Merchandise cost, including freight, increased approximately 40 basis points primarily due to incremental tariffs of approximately $26.2 million and increased sales of higher cost consumable merchandise, particularly during the Easter selling season, as a result of the COVID-19 pandemic, partially offset by improved initial mark-on.

Total distribution center COVID-19-related expenses were $16.9 million, or 20 basis points of this increase.

Shrink costs increased 10 basis points resulting from unfavorable inventory reconciliations in the current year and an increase in the shrink accrual rate.

Markdown costs increased 10 basis points resulting from increased seasonal markdowns from the lower than planned sell-through on Easter merchandise as a result of the COVID-19 pandemic and $2.9 million of uninsured markdown costs for stores affected by civil unrest.

Operating income margin for the Dollar Tree segment decreased to 9.7% for the 13 weeks ended August 1, 2020 from 11.4% for the same period last year.

The decrease in operating income margin in the 13 weeks ended August 1, 2020 was the result of higher selling, general and administrative expenses, as a percentage of net sales, and the gross profit margin decrease noted above.

Selling, general and administrative expenses increased to 24.0% as a percentage of net sales in the 13 weeks ended August 1, 2020 compared to 22.4% for the same period last year as a result of the net of the following:

Payroll expenses increased approximately 175 basis points primarily due to incremental costs associated with the COVID-19 pandemic.

The COVID-19-related increases were partially offset by leverage from the comparable store net sales increase and decreases in workers’ compensation expenses and benefits costs.

Payroll expenses also included $0.2 million in pay continuation for associates whose stores were closed due to civil unrest.

Other selling, general and administrative expenses increased approximately 5 basis points as a result of an increase in insurance costs related to unfavorable development of general liability claims, partially offset by lower travel costs due to the COVID-19 pandemic and lower legal expenses.

The 13 weeks ended August 1, 2020 included approximately $3.5 million, or 10 basis points, of costs for masks, gloves and cleaning supplies due to the COVID-19 pandemic.

Store facility costs decreased approximately 10 basis points due to leverage from the comparable store net sales increase and lower electricity costs.

The 13 weeks ended August 1, 2020 included expenses for repairs to stores damaged by civil unrest.

Operating income in the 13 weeks ended August 1, 2020 includes approximately $76.6 million of COVID-19-related expenses and $5.1 million of uninsured costs related to civil unrest.

Operating income margin for the Dollar Tree segment decreased to 9.4% for the 26 weeks ended August 1, 2020 from 12.4% for the same period last year.

The decrease in operating income margin in the 26 weeks ended August 1, 2020 was the result of higher selling, general and administrative expenses, as a percentage of net sales, and the gross profit margin decrease noted above.

Selling, general and administrative expenses increased to 23.4% as a percentage of net sales in the 26 weeks ended August 1, 2020 compared to 21.7% for the same period last year as a result of the net of the following:

Payroll expenses increased approximately 160 basis points primarily due to incremental costs associated with the COVID-19 pandemic, including a $2 per hour premium paid to all store hourly associates for all hours worked since March 8, 2020, bonuses for certain field management associates, guaranteed bonus payouts and Thank You bonuses for store managers, quarantine pay and sick pay as well as the related payroll taxes.

These costs totaled $99.7 million for the 26 weeks ended August 1, 2020.

The 26 weeks ended August 1, 2020 included approximately $8.3 million, or 15 basis points, of costs for the installation of plexiglass sneeze guards at all registers in our stores and incremental costs for masks, gloves and cleaning supplies due to the COVID-19 pandemic.

Store facility costs decreased approximately 10 basis points due to leverage from the comparable store net sales increase.

The 26 weeks ended August 1, 2020 included expenses for repairs to stores damaged in civil unrest.

Operating income in the 26 weeks ended August 1, 2020 includes approximately $118.8 million of COVID-19-related expenses and $5.1 million of uninsured costs related to civil unrest.

Merchandise cost, including freight, decreased 10 basis points primarily due to increased sales of higher margin discretionary merchandise and lower freight costs, partially offset by incremental tariffs of $26.1 million and lower initial mark-on.

Discretionary merchandise sales were a higher proportion of total sales in the second and third quarters of 2020 while they were a lower proportion in the first quarter of 2020 as a result of the lower Easter sales due to the COVID-19 pandemic.

Operating income margin for the Dollar Tree segment increased to 12.7% for the 13 weeks ended October 31, 2020 from 12.2% for the same period last year.

The increase in operating income margin in the 13 weeks ended October 31, 2020 was the result of the gross margin increase noted above, partially offset by an increase in selling, general and administrative expenses, as a percentage of net sales.

Selling, general and administrative expenses increased to 22.2% as a percentage of net sales in the 13 weeks ended October 31, 2020 compared to 22.0% for the same period last year as a result of the net of the following:

Payroll expenses increased 50 basis points primarily due to incremental costs associated with the COVID-19 pandemic and increased incentive compensation and store sales bonus expenses resulting from improved operating results in the current quarter.

These increases were partially offset by leverage from the comparable store net sales increase and lower office payroll costs.

Store facility costs decreased 15 basis points due to leverage from the comparable store net sales increase and lower electricity costs.

Other selling, general and administrative expenses decreased 5 basis points resulting from the leverage from the comparable store net sales increase and lower travel costs due to the COVID-19 pandemic.

The 13 weeks ended October 31, 2020 included $4.5 million, or 15 basis points, of costs for masks, gloves and cleaning supplies due to the COVID-19 pandemic.

Operating income in the 13 weeks ended October 31, 2020 includes $28.6 million of COVID-19-related expenses.

Operating income margin for the Dollar Tree segment decreased to 10.5% for the 39 weeks ended October 31, 2020 from 12.3% for the same period last year.

The decrease in operating income margin in the 39 weeks ended October 31, 2020 was the result of higher selling, general and administrative expenses, as a percentage of net sales, and the gross profit margin decrease noted above.

Selling, general and administrative expenses increased to 23.1% as a percentage of net sales in the 39 weeks ended October 31, 2020 compared to 21.9% for the same period last year as a result of the net of the following:

Payroll expenses increased 125 basis points primarily due to incremental costs associated with the COVID-19 pandemic, including a per hour premium paid to all store hourly associates for all hours worked from March 8, 2020 through September 26, 2020, bonuses for certain field management associates, guaranteed bonus payouts and Thank You bonuses for store managers, quarantine pay and sick pay as well as the related payroll taxes.

These costs totaled $117.0 million, or 120 basis points, for the 39 weeks ended October 31, 2020.

Other selling, general and administrative expenses increased 5 basis points as a result of an increase in insurance costs related to unfavorable development of general liability claims, partially offset by lower travel costs due to the COVID-19 pandemic.

The 39 weeks ended October 31, 2020 included $12.8 million, or 15 basis points, of costs for the installation of plexiglass sneeze guards at all registers in our stores and incremental costs for masks, gloves and cleaning supplies due to the COVID-19 pandemic.

Store facility costs decreased 10 basis points due to leverage from the comparable store net sales increase.

The 39 weeks ended October 31, 2020 included expenses for repairs to stores damaged in civil unrest.

Operating income in the 39 weeks ended October 31, 2020 includes $147.4 million of COVID-19-related expenses and $5.2 million of uninsured costs related to civil unrest.

Family Dollar

2 unchanged sentences

39 Weeks Ended

August 1, 2020

August 3, 2019

August 1, 2020

August 3, 2019

October 31, 2020

November 2, 2019

October 31, 2020

November 2, 2019

(in millions)

Operating income

Net sales for the Family Dollar segment increased $317.8 million or 11.4% for the 13 weeks ended August 1, 2020 compared to the same period last year.

The increase was due to a comparable store net sales increase of 11.6% and $62.2 million of new store sales, partially offset by lost sales resulting from store closures during fiscal 2019 in connection with our store optimization program.

For the 13 weeks ended August 1, 2020 , average ticket increased 25.9% and customer traffic declined 11.3%.

Net sales for the Family Dollar segment increased $677.8 million or 12.0% for the 26 weeks ended August 1, 2020 compared to the same period last year.

Net sales for the Family Dollar segment increased $201.6 million or 7.5% for the 13 weeks ended October 31, 2020 compared to the same period last year.

The increase was due to a comparable store net sales increase of 6.4% and $63.2 million of new store sales.

For the 13 weeks ended October 31, 2020 , average ticket increased 21.3% and customer traffic declined 12.3%.

Net sales for the Family Dollar segment increased $879.4 million or 10.6% for the 39 weeks ended October 31, 2020 compared to the same period last year.

The increase was due to a comparable store net sales increase of 11.2% and $196.9 million of new store sales, partially offset by lost sales resulting from store closures during fiscal 2019 in connection with our store optimization program.

For the 26 weeks ended August 1, 2020 , average ticket increased 21.4% and customer traffic declined 6.4%.

Gross profit margin for the Family Dollar segment increased to 27.2% for the 13 weeks ended August 1, 2020 compared to 23.3% for the same period last year.

For the 39 weeks ended October 31, 2020 , average ticket increased 21.4% and customer traffic declined 8.4%.

Gross profit margin for the Family Dollar segment increased to 26.8% for the 13 weeks ended October 31, 2020 compared to 24.5% for the same period last year.

The increase is due to the net of the following:

Merchandise cost, including freight, decreased approximately 190 basis points primarily due to increased sales of higher margin discretionary merchandise, improved initial mark-on and lower freight costs, partially offset by incremental tariffs of approximately $2.6 million.

Occupancy costs decreased approximately 95 basis points as a result of the leverage from the comparable store net sales increase.

Markdowns at cost decreased approximately 85 basis points primarily due to store closure and clearance sale markdowns in the prior year quarter and lower promotional activity in the current year, partially offset by $7.0 million of uninsured markdown costs for stores affected by civil unrest.

Shrink expense decreased approximately 40 basis points resulting from favorable inventory reconciliations in the current year and the prior year including an increase in the accrual rate and unfavorable inventory reconciliations.

Distribution costs increased approximately 25 basis points resulting primarily from higher distribution center payroll costs.

We paid our hourly distribution center associates a $2 per hour premium for all hours worked during the current quarter.

Total distribution center COVID-19-related expenses were approximately $4.7 million, or 15 basis points of this increase.

Gross profit margin for the Family Dollar segment increased to 26.3% for the 26 weeks ended August 1, 2020 compared to 24.1% for the same period last year.

Shrink expense decreased 70 basis points resulting from favorable inventory reconciliations in the current year.

Merchandise cost, including freight, decreased 60 basis points primarily due to increased sales of higher margin discretionary merchandise, improved initial mark-on and lower freight costs.

Occupancy costs decreased 60 basis points as a result of the leverage from the comparable store net sales increase.

Markdowns at cost decreased 40 basis points primarily due to lower promotional activity and lower clearance markdowns in the current year as a result of higher sell-through of seasonal and apparel merchandise.

Distribution costs were flat as higher distribution center payroll costs were offset by lower distribution center asset disposals and leverage from the comparable store net sales increase.

We paid our hourly distribution center associates a per hour premium for all hours worked during the 13 weeks ended October 31, 2020.

Total distribution center COVID-19-related expenses were $4.3 million, or 15 basis points.

Gross profit margin for the Family Dollar segment increased to 26.4% for the 39 weeks ended October 31, 2020 compared to 24.2% for the same period last year.

The increase is due to the net of the following:

Occupancy costs decreased approximately 100 basis points as a result of the leverage from the comparable store net sales increase and the higher expense in the prior year related to the accelerated amortization of the right-of-use assets for stores we closed during 2019.

Merchandise cost, including freight, decreased approximately 65 basis points primarily due to increased sales of higher margin discretionary merchandise, improved initial mark-on and lower freight costs, partially offset by incremental tariffs of approximately $7.6 million.

Markdowns at cost decreased approximately 40 basis points primarily due to store closure and clearance sale markdowns in the prior year and lower promotional activity in the current year, partially offset by $7.0 million of uninsured markdown costs for stores affected by civil unrest.

Shrink expense decreased approximately 35 basis points resulting from favorable inventory reconciliations in the current year and the prior year, including an increase in the accrual rate and unfavorable inventory reconciliations.

Distribution costs increased approximately 20 basis points resulting primarily from higher distribution center payroll costs.

Occupancy costs decreased 90 basis points as a result of the leverage from the comparable store net sales increase and higher expense in the prior year related to the accelerated amortization of the right-of-use assets for stores we closed during 2019.

Merchandise cost, including freight, decreased 65 basis points primarily due to increased sales of higher margin discretionary merchandise and improved initial mark-on, partially offset by incremental tariffs of $8.7 million.

Shrink expense decreased 45 basis points resulting from favorable inventory reconciliations in the current year and the prior year including an increase in the accrual rate.

Markdowns at cost decreased 40 basis points primarily due to store closure and clearance sale markdowns in the prior year and lower promotional activity in the current year, partially offset by $7.5 million of uninsured markdown costs for stores affected by civil unrest.

Distribution costs increased 15 basis points resulting primarily from higher distribution center payroll costs.

We paid our hourly distribution center associates a per hour premium for all hours worked since March 8, 2020.

Total distribution center COVID-19-related expenses were approximately $7.5 million, or 10 basis points of this increase.

Operating income margin for the Family Dollar segment increased to 5.3% for the 13 weeks ended August 1, 2020 from 0.6% for the same period last year resulting from the gross margin increase noted above and a decrease in selling, general and administrative expenses as a percentage of net sales.

Selling, general and administrative expenses were 21.9% as a percentage of net sales in the 13 weeks ended August 1, 2020 compared to 22.7% for the same period last year.

Total distribution center COVID-19-related expenses were $11.8 million, or 15 basis points of this increase.

Operating income margin for the Family Dollar segment increased to 4.6% for the 13 weeks ended October 31, 2020 from 2.1% for the same period last year resulting from the gross margin increase noted above and a decrease in selling, general and administrative expenses as a percentage of net sales.

Selling, general and administrative expenses were 22.2% as a percentage of net sales in the 13 weeks ended October 31, 2020 compared to 22.4% for the same period last year.

The current quarter decrease in selling, general and administrative expenses, as a percentage of net sales, was due to the net of the following:

Other selling, general and administrative expenses decreased approximately 90 basis points primarily due to higher costs in the prior year related to the disposal of fixed assets in connection with the store optimization program, a decrease in promotional advertising and travel during the COVID-19 pandemic and leverage associated with the increase in comparable store net sales during the period, partially offset by an increase in insurance costs related to unfavorable development of general liability claims.

The 13 weeks ended August 1, 2020 included $3.9 million or 15 basis points of costs for masks, gloves and cleaning supplies due to the COVID-19 pandemic and $1.9 million of expenses primarily for fixed asset disposals for stores damaged by civil unrest.

Store facility costs decreased approximately 25 basis points primarily due to leverage from the comparable store net sales increase and lower electricity costs.

The 13 weeks ended August 1, 2020 included $2.4 million or 10 basis points of incremental repairs and maintenance expenses for stores damaged by civil unrest.

Payroll expenses increased approximately 40 basis points primarily due to incremental costs associated with the COVID-19 pandemic and an increase in incentive compensation resulting from the improved Family Dollar operating performance, partially offset by leverage from the comparable store net sales increase and decreases in workers’ compensation expenses and benefits costs, as well as lower temporary help expenses as a result of the prior year including higher expenses to support store-level initiatives.

Incremental costs associated with the COVID-19 pandemic, including a $2 per hour premium paid to all store hourly associates for all hours worked during the 13 weeks ended August 1, 2020, bonuses for certain field management associates, guaranteed bonus payouts and Thank You bonuses for store managers, quarantine pay and sick pay as well as the related payroll taxes, totaled $48.2 million or 155 basis points.

Operating income in the 13 weeks ended August 1, 2020 includes approximately $57.1 million for COVID-19-related expenses and $11.7 million of uninsured costs related to civil unrest.

Operating income margin for the Family Dollar segment increased to 5.4% for the 26 weeks ended August 1, 2020 from 1.9% for the same period last year resulting from the gross margin increase noted above and a decrease in selling, general and administrative expenses, as a percentage of net sales.

Selling, general and administrative expenses were 20.9% as a percentage of net sales in the 26 weeks ended August 1, 2020 compared to 22.2% for the same period last year.

Other selling, general and administrative expenses decreased 20 basis points primarily due to a decrease in promotional advertising and travel during the COVID-19 pandemic, higher costs in the prior year related to the disposal of fixed assets in connection with the store optimization program and leverage associated with the increase in comparable store net sales during the period, partially offset by an increase in supplies expense.

The 13 weeks ended October 31, 2020 included $1.7 million or 5 basis points of costs for masks, gloves and cleaning supplies due to the COVID-19 pandemic.

Store facility costs decreased 20 basis points primarily due to leverage from the comparable store net sales increase and lower electricity costs.

Depreciation and amortization expense decreased 10 basis points primarily due to leverage from the comparable store net sales increase.

Payroll expenses increased 35 basis points primarily due to incremental costs associated with the COVID-19 pandemic and increased incentive compensation and store sales bonus expenses resulting from the improved Family Dollar operating performance, partially offset by leverage from the comparable store net sales increase.

Incremental costs associated with the COVID-19 pandemic, including a $1 per hour premium paid to all store hourly associates for all hours worked during the current quarter through September 26, 2020, quarantine pay and sick pay as well as the related payroll taxes, totaled $11.4 million or 40 basis points.

Operating income in the 13 weeks ended October 31, 2020 includes $17.4 million for COVID-19-related expenses.

Operating income margin for the Family Dollar segment increased to 5.1% for the 39 weeks ended October 31, 2020 from 2.0% for the same period last year resulting from the gross margin increase noted above and a decrease in selling, general and administrative expenses, as a percentage of net sales.

Selling, general and administrative expenses were 21.3% as a percentage of net sales in the 39 weeks ended October 31, 2020 compared to 22.2% for the same period last year.

The decrease in selling, general and administrative expenses, as a percentage of net sales, was due to the following:

Other selling, general and administrative expenses decreased approximately 65 basis points primarily due to a decrease in promotional advertising during the COVID-19 pandemic, higher costs in the prior year related to the disposal of fixed assets in connection with the store optimization program and leverage associated with the increase in comparable store net sales during the period, partially offset by an increase in insurance costs related to unfavorable development of general liability claims.

The 26 weeks ended August 1, 2020 included $7.7 million or 10 basis points of costs for masks, gloves and cleaning supplies due to the COVID-19 pandemic and $1.9 million of expenses primarily for fixed asset disposals for stores damaged by civil unrest.

Store facility costs decreased approximately 40 basis points primarily due to leverage from the comparable store net sales increase and lower electricity costs.

The 26 weeks ended August 1, 2020 included $2.4 million of incremental repairs and maintenance expenses for stores damaged by civil unrest.

Payroll expenses decreased approximately 15 basis points primarily due to leverage from the comparable store net sales increase and decreases in workers’ compensation expenses and benefits costs, as well as lower temporary help expenses as a result of the prior year including higher expenses to support store-level initiatives, partially offset by incremental costs associated with the COVID-19 pandemic and an increase in incentive compensation resulting from the improved Family Dollar operating performance.

Incremental costs associated with the COVID-19 pandemic, including a $2 per hour premium paid to all store hourly associates for all hours worked since March 8, 2020, bonuses for certain field management associates, guaranteed bonus payouts and Thank You bonuses for store managers, quarantine pay and sick pay as well as the related payroll taxes totaled approximately $72.0 million or 115 basis points.

Operating income in the 26 weeks ended August 1, 2020 includes approximately $87.5 million for COVID-19-related expenses and $11.7 million of uninsured costs related to civil unrest.

Other selling, general and administrative expenses decreased 50 basis points primarily due to a decrease in promotional advertising and travel during the COVID-19 pandemic, higher costs in the prior year related to the disposal of fixed assets in connection with the store optimization program and leverage associated with the increase in comparable store net sales during the period, partially offset by an increase in insurance costs related to unfavorable development of general liability claims.

The 39 weeks ended October 31, 2020 included $9.3 million or 10 basis points of costs for masks, gloves and cleaning supplies due to the COVID-19 pandemic and $1.9 million of expenses primarily for fixed asset disposals for stores damaged by civil unrest.

Store facility costs decreased 35 basis points primarily due to leverage from the comparable store net sales increase and lower electricity costs.

The 39 weeks ended October 31, 2020 included $2.5 million of incremental repairs and maintenance expenses for stores damaged by civil unrest.

Depreciation and amortization expense decreased 10 basis points primarily due to leverage from the comparable store net sales increase.

Payroll expenses were flat as incremental costs associated with the COVID-19 pandemic and increased incentive compensation and store sales bonus expenses resulting from the improved Family Dollar operating performance were offset by leverage from the comparable store net sales increase and decreases in workers’ compensation expenses and benefits costs, as well as lower temporary help expenses as a result of the prior year including higher expenses to support store-level initiatives.

Incremental costs associated with the COVID-19 pandemic, including a per hour premium paid to all store hourly associates for all hours worked from March 8, 2020 to September 26, 2020, bonuses for certain field management associates, guaranteed bonus payouts and Thank You bonuses for store managers, quarantine pay and sick pay as well as the related payroll taxes totaled $83.4 million or 90 basis points.

Operating income in the 39 weeks ended October 31, 2020 includes $104.9 million for COVID-19-related expenses and $12.4 million of uninsured costs related to civil unrest.

Liquidity and Capital Resources

2 unchanged sentences

Historically, we have satisfied our seasonal working capital requirements for existing stores and have funded our store opening and distribution network expansion programs from internally generated funds and borrowings under our credit facilities.

The following table compares cash-flow related information for the 26 weeks ended August 1, 2020 and August 3, 2019 :

The following table compares cash-flow related information for the 39 weeks ended October 31, 2020 and November 2, 2019 :

39 Weeks Ended

4 unchanged sentences

Financing activities

Net cash provided by operating activities increased $593.0 million primarily as a result of lower inventory levels as well as higher accounts payable, current liabilities and other liabilities at August 1, 2020, and increased earnings before depreciation and amortization in the current year.

Net cash provided by operating activities increased $719.2 million primarily as a result of higher accounts payable, current liabilities and other liabilities and lower inventory levels at October 31, 2020, and increased earnings before depreciation and amortization in the current year.

Net cash used in investing activities decreased $61.2 million primarily due to higher capital expenditures in the prior year for the Family Dollar store optimization program, including H2 renovations and re-banners.

H2 renovations have been slowed in the current year due to the COVID-19 pandemic.

The decrease was partially offset by increased capital expenditures related to distribution center projects in the current year and grant funds received from state and local governments for our Summit Pointe development in the prior year.

For the 26 weeks ended August 1, 2020, cash provided by financing activities was $245.4 million compared to cash used in financing activities of $154.0 million for the 26 weeks ended August 3, 2019.

The cash provided by financing activities in the current year is the result of the preemptive draw on our Revolving Credit Facility of $750.0 million partially offset by the final $250.0 million payment on the Senior Floating Rate Notes due 2020 and a $250.0 million repayment of the Revolving Credit Facility draw.

The prior year quarter included $139.2 million of cash paid for stock repurchases.

In the first quarter of fiscal 2020, we preemptively drew on our Revolving Credit Facility to reduce our exposure to potential short-term liquidity risk in the banking system as a result of the COVID-19 pandemic.

At August 1, 2020 , our total borrowings were $4.1 billion and we had $614.3 million available under our Revolving Credit Facility.

We also have $346.5 million in Letter of Credit Reimbursement and Security Agreements with various financial institutions, under which approximately $308.5 million was committed to letters of credit issued for routine purchases of imported merchandise as of August 1, 2020 .

There were no shares repurchased on the open market during the 26 weeks ended August 1, 2020 , and we have temporarily suspended share repurchases under the Board repurchase authorization.

We repurchased 1,842,307 shares of common stock on the open market for approximately $188.4 million during the 26 weeks ended August 3, 2019 .

As of August 1, 2020 , we had $800.0 million remaining under Board repurchase authorization.

The decrease was partially offset by increased capital expenditures related to distribution center

projects in the current year and grant funds received from state and local governments for our Summit Pointe development in the prior year.

Net cash used in financing activities increased $234.7 million, resulting primarily from the final $250.0 million payment on the Senior Floating Rate Notes due 2020.

At October 31, 2020 , our total borrowings were $3.55 billion and we had $1.2 billion available under our Revolving Credit Facility.

We also have $346.5 million in Letter of Credit Reimbursement and Security Agreements with various financial institutions, under which $216.6 million was committed to letters of credit issued for routine purchases of imported merchandise as of October 31, 2020 .

We repurchased 2,154,304 shares of common stock on the open market for $200.0 million during the 39 weeks ended October 31, 2020 .

Approximately $5.8 million in share repurchases had not settled as of October 31, 2020 and this amount was accrued in the accompanying unaudited condensed consolidated balance sheet as of October 31, 2020.

We repurchased 1,967,355 shares of common stock on the open market for $200.0 million during the 39 weeks ended November 2, 2019 .

As of October 31, 2020 , we have $600.0 million remaining under Board repurchase authorization.

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