What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-03-16 compared with 2020-03-20 · 305 added, 193 removed, 161 unchanged (76% of the section changed)

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Financial Statements and Supplementary Data ” of this Form 10-K.

Unless otherwise indicated, references to “we,” “our” or “us” refer to Dollar Tree, Inc.

and its direct and indirect subsidiaries on a consolidated basis.

Key Events and Recent Developments

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They are listed below:

Coronavirus Pandemic

In March 2020, infections of the coronavirus COVID-19 had become pandemic with persons testing positive in all fifty states and the District of Columbia.

With the possibility of widespread infection in the United States and abroad, national, state and local authorities have recommended social distancing and imposed or are considering quarantine and isolation measures on large portions of the population, including mandatory business closures.

The Company has been classified as an essential business in certain jurisdictions that have decided that issue to date, and we have been allowed to remain open.

However, we can give no assurance that that will not change in the future and we may also be forced to close stores or other facilities for other reasons such as the health of our associates or because of disruptions in the continued operation of our supply chain and sources of supply.

Other economic effects of the COVID-19 pandemic are difficult to predict and may adversely impact our results of operations or business condition.

Integration of Family Dollar

• Impact of COVID-19

The COVID-19 pandemic has materially affected, and likely will continue to affect, our financial condition and results of operations for the foreseeable future.

As you review the Management’s Discussion and Analysis of Financial Condition and Results of Operations, please keep in mind the following.

As an essential business, our stores and distribution centers have remained open during the pandemic;

however, our business trends and financial results are materially different than what we expected.

We estimate that our increased costs related to COVID-19 for premium pay including bonuses, supplies, protective equipment, and similar items in fiscal 2020 was $279.0 million.

Although we believe that the pandemic has resulted in higher sales at Family Dollar, we also believe it has resulted in significantly lower sales at Dollar Tree during the Easter season in 2020 and in our party departments.

In addition, as a result of fewer customer trips, sales in certain consumable departments such as snacks and candy have been lower.

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 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 into 2021.

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

We have implemented several changes to support our associates in adhering to CDC recommendations.

◦ Activated our Business Response Team to communicate, assess and address potential exposure throughout the organization;

◦ Provided personal protective equipment including masks, gloves and sanitizers for our store and distribution center associates;

◦ 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 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;

◦ Provided pay continuation for associates who test positive or who are Group 1 associates who have to self-quarantine;

◦ Created a “store” within each distribution center to allow our associates to shop for needed supplies at work when supplies were scarce in retail locations;

◦ Eliminated all non-essential air travel;

◦ Utilized technology options for all large group meetings;

◦ Prohibited external visitors’ access to the store support center;

◦ Enabled the majority of our store support center teams to work remotely;

◦ Enabled contactless payments to our POS systems for our customers;

◦ Followed local municipality, county, and state guidelines and regulations needed to be open as an essential business;

◦ Encouraged safe social distancing protocols for our customers with signing, graphics and communications;

◦ Enabled health prescreening questionnaire for all store and distribution associates before entering work;

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

Given the level of volatility and uncertainty surrounding the future impact of COVID-19 on our customers, suppliers and the broader economies in the locations that we operate as well as uncertainty around the future impact on our supply chain, it is challenging to predict our future operations and financial results.

Following is a discussion of the impacts that we have seen and the factors which could influence our future performance.

During March 2020, our Dollar Tree and Family Dollar stores began to experience a significant increase in customer demand and sales related to essential products and comparable store net sales increased significantly.

However, beginning the last week of March 2020 and continuing into April during the peak of the Easter selling season, comparable store net sales at our Dollar Tree stores decreased.

Beginning in mid-April, comparable store net sales at our Dollar Tree stores increased as the comparable Easter period from 2019 had passed.

For fiscal 2020, enterprise comparable store net sales increased 6.1% resulting from an increase in average ticket of 20.0%, partially offset by decreased traffic of 11.6%.

After the Easter selling season, in both banners, we saw an increase in demand for and sales of discretionary products and our seasonal business for the other holidays throughout the year was strong.

The future impact of COVID-19 on our customers and our business is difficult to predict.

The course of the pandemic, the effectiveness of health measures such as vaccines, and the impact of ongoing economic stabilization efforts is uncertain and government assistance payments may not provide enough funding to support current spending.

The American Rescue Plan Act of 2021 (“Rescue Act”), which was enacted on March 11, 2021, provides U.S.

government funding to address the continuing impact of COVID-19 on the economy, public health, individuals and businesses.

Among other things, the Rescue Act provides for $1,400 direct payments to individuals, continues supplemental unemployment benefits until September 2021, extends a prior increase in food stamp benefits, expands the child tax credit and earned income tax credit, provides for rent and utility assistance, and funds COVID-19 vaccinations, testing, treatment and prevention.

An increase in the federal minimum wage was not included in the Rescue Act as enacted.

The demand for essential supplies has increased and we are dependent on our suppliers to replenish the goods in our stores.

Disruptions in our supply chain or sources of supply could adversely impact our sales.

Our new store openings in fiscal 2020 were affected by construction delays due to challenges with the permitting process during COVID-19.

During 2020, we opened 341 new Dollar Tree stores and 156 new Family Dollar stores compared to an original plan of 350 new Dollar Tree stores and 200 new Family Dollar stores.

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.

We resumed the roll-out during the second quarter of 2020 and renovated approximately 770 stores to this format in fiscal 2020 compared with our original plan of 1,250 renovations.

Also, as a result of COVID-19-related delays in obtaining permits, we added adult beverage product to approximately 570 stores in fiscal 2020 compared with our original plan of 1,000.

For further discussion of the impacts that COVID-19 had on our financial condition and results of operations during fiscal 2020, refer to “Results of Operations” in this Item 7.

• Family Dollar

◦ In 2018, based on our strategic and operational reassessment of the Family Dollar segment following challenges that the business experienced that impacted our ability to grow the business at the originally estimated rate when we acquired Family Dollar in 2015, management determined there were indicators that the goodwill of the business may be impaired.

Accordingly, a goodwill impairment test was performed in the fourth quarter of fiscal 2018 and we performed our annual impairment test in 2019.

The results of the impairment tests showed that the fair value of the Family Dollar reporting unit was lower than its carrying value resulting in $313.0 million and $2.73 billion non-cash pre-tax and after-tax goodwill impairment charges in the fourth quarters of fiscal 2019 and 2018, respectively.

Accordingly, a goodwill impairment test was performed in the fourth quarter of fiscal 2018 and we recorded a $2.73 billion non-cash pre-tax and after-tax goodwill impairment charge.

The results of our 2019 annual impairment test showed that the fair value of the Family Dollar reporting unit was lower than its carrying value resulting in a $313.0 million non-cash pre-tax and after-tax goodwill impairment charge.

◦ In March 2019, we announced plans for a store optimization program for Family Dollar.

For fiscal 2019, this program included rolling out a new model for both new and renovated Family Dollar stores, internally known as H2, re-bannering selected stores to the Dollar Tree brand, closing under-performing stores, and installing adult beverages and expanding freezers and coolers in selected stores.

We plan to continue to roll out the H2 concept to more stores, increase the number of stores with adult beverages and expand freezers and coolers in selected stores in 2020.

In fiscal 2020, we continued to roll out the H2

concept to more stores, increased the number of stores with adult beverages and expanded freezers and coolers in selected stores and plan to continue these initiatives in fiscal 2021.

◦ In fiscal 2019, we substantially completed our consolidation of our store support centers in Matthews, North Carolina and Chesapeake, Virginia to our Summit Pointe development in Chesapeake, Virginia.

In the third quarter of 2018, we opened a new 1.2 million square foot distribution center in Warrensburg, Missouri.

◦ Building on the success of the H2 format, we have developed a Combination Store which leverages both the Dollar Tree and Family Dollar brands to serve small towns across the country.

We are taking Family Dollar’s great value and assortment and blending in select Dollar Tree merchandise categories, creating a new store format targeted for small towns and rural communities with populations of 3,000 to 4,000 residents.

• Supply Chain

◦ In the third quarter of 2019, we opened a new 1.2 million square foot distribution center in Morrow County, Ohio.

In fiscal 2019, we began construction of a new 1.2 million square foot distribution center in Rosenberg, Texas which is expected to be operational in the third quarter of 2020.

In fiscal 2019, we announced plans to construct a new high velocity distribution center in Ocala, Florida that will provide service directly to Dollar Tree and Family Dollar stores throughout Florida and parts of the Southeast and will be built in two phases eventually comprising a 1.7 million square foot facility.

◦ In the third quarter of 2020, we opened a new 1.2 million square foot distribution center in Rosenberg, Texas and opened the first phase of our new Ocala, Florida distribution center.

• Long-term Debt

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▪ We entered into a credit agreement for a $782.0 million term loan facility and a $1.25 billion revolving credit facility;

We used the proceeds of the above offerings to repay the $2,182.7 million outstanding under our senior secured credit facilities and redeem the remaining $2,500.0 million outstanding under our acquisition debt, resulting in the acceleration of the expensing of $41.2 million of deferred financing costs and the incurrence of $114.3 million in prepayment penalties.

▪ We used the proceeds of the above offerings to repay the $2,182.7 million outstanding under our senior secured credit facilities and redeem the remaining $2.5 billion outstanding under our acquisition debt, resulting in the acceleration of the expensing of $41.2 million of deferred financing costs and our incurring $114.3 million in prepayment penalties.

◦ During the fourth quarter of 2018, we prepaid the $782.0 million outstanding under the term loan facility and accelerated the expensing of $1.5 million of deferred financing costs.

◦ During the fourth quarter of 2019, we prepaid $500.0 million of the $750.0 million Senior Floating Rate Notes due 2020 and accelerated the expensing of $0.3 million of deferred financing costs.

◦ During the first quarter of 2020, we repaid the remaining $250.0 million outstanding under the Senior Floating Rate Notes.

◦ During the first quarter of 2020, we preemptively drew $750.0 million 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, all of which was repaid by the end of the third quarter of 2020.

◦ During the fourth quarter of 2020, we repaid the $300.0 million 5.00% Senior Notes that we assumed upon the acquisition of Family Dollar.

We are a leading operator of more than 15,600 retail discount stores and we conduct our operations in two reporting segments.

Our Dollar Tree segment is the leading operator of discount variety stores offering merchandise at the fixed price of $1.00.

Our Dollar Tree segment is the leading operator of discount variety stores offering merchandise predominantly at the fixed price of $1.00.

Our Family Dollar segment operates general merchandise retail discount stores providing consumers with a selection of competitively-priced merchandise in convenient neighborhood stores.

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Two major factors tend to affect our net sales trends.

First is our success at opening new stores or adding new stores through mergers or acquisitions.

First is our success at opening new stores.

Second is the performance of stores once they are open.

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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 February 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 years ended February 1, 2020 and February 2, 2019 is as follows:

February 1, 2020

February 2, 2019

Family Dollar

At January 30, 2021, 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 years ended January 30, 2021 and February 1, 2020 is as follows:

January 30, 2021 February 1, 2020

Dollar Tree Family Dollar Total Dollar Tree Family Dollar Total

Beginning 7,505 7,783 15,288 7,001 8,236 15,237

New stores 341 156 497 348 170 518

Re-bannered stores (4) 5 1 200 (200) —

Closings (37) (64) (101) (44) (423) (467)

Ending 7,805 7,880 15,685 7,505 7,783 15,288

Relocations 49 39 88 47 15 62

Selling Square Feet (in millions):

Beginning 64.6 56.7 121.3 60.3 59.8 120.1

New stores 3.1 1.3 4.4 3.0 1.3 4.3

Re-bannered stores (0.1) 0.1 — 1.5 (1.5) —

Closings (0.3) (0.5) (0.8) (0.4) (2.9) (3.3)

Relocations 0.1 0.1 0.2 0.2 — 0.2

Ending 67.4 57.7 125.1 64.6 56.7 121.3

Stores are included as re-banners when they close or open, respectively.

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The average size of stores opened in 2020 was approximately 8,640 selling square feet (or about 10,800 gross square feet) for the Dollar Tree segment and 8,460 selling square feet (or about 10,360 gross square feet) for the Family Dollar segment.

For 2020 , we continue to plan to open stores that are approximately 8,000 - 10,000 selling square feet (or about 10,000 - 12,000 gross square feet) for the Dollar Tree segment and approximately 7,000 - 9,000 selling square feet (or about 9,000 - 11,000 gross square feet) for the Family Dollar segment.

For 2021, we continue to plan to open stores that are 8,000 - 10,000 selling square feet (or about 10,000 - 12,000 gross square feet) for the Dollar Tree segment and 7,000 - 10,000 selling square feet (or about 9,000 - 12,000 gross 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.

Fiscal 2019 and fiscal 2018 which ended on February 1, 2020 and February 2, 2019, respectively, each included 52 weeks.

Fiscal 2017 ended on February 3, 2018 and included 53 weeks, commensurate with the retail calendar.

The 53rd week in 2017 added approximately $406.6 million in sales.

In fiscal 2019 , comparable store net sales increased by 1.8% on a constant currency basis, as a result of increases in average ticket and customer count.

Fiscal 2020, fiscal 2019 and fiscal 2018 each included 52 weeks.

The percentage change in comparable store net sales on a constant currency basis for the fiscal year ended January 30, 2021, as compared with the preceding year, is as follows:

Year Ended January 30, 2021

Sales Growth Change in Customer Traffic Change in Average Ticket

Consolidated 6.1 % (11.6) % 20.0 %

Dollar Tree Segment 2.2 % (13.3) % 17.9 %

Family Dollar Segment 10.5 % (9.1) % 21.5 %

Constant currency basis refers to the calculation excluding the impact of currency exchange rate fluctuations.

We calculated the constant currency basis increase by translating the current year’s comparable store net sales in Canada using the prior year’s currency exchange rates.

We calculated the constant currency basis change by translating the current year’s comparable store net sales in Canada using the prior year’s currency exchange rates.

We believe that the constant currency basis provides a more accurate measure of comparable store net sales performance.

Including the impact of Canadian currency fluctuations, comparable store net sales increased the same 1.8% .

On a constant currency basis, comparable store net sales increased 2.3% in the Dollar Tree segment and increased 1.4% in the Family Dollar segment in fiscal 2019 .

In the Dollar Tree segment, customer count increased 1.3% and average ticket increased 1.0% .

In the Family Dollar segment, an increase of 1.8% in average ticket was partially offset by a decrease in customer count of 0.4% .

Including the impact of currency, comparable store net sales in the Dollar Tree segment increased 2.2% .

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.

Dollar Tree Initiatives

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

We continued the roll-out of frozen and refrigerated merchandise to more of our Dollar Tree stores in 2019 and as of February 1, 2020 , the Dollar Tree banner had frozen and refrigerated merchandise in approximately 6,155 stores compared to approximately 5,665 stores at February 2, 2019 .

In 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 February 1, 2020 , we have Snack Zone in more than 2,100 Dollar Tree stores and we plan to incorporate Snack Zone in 500 new and existing stores in fiscal 2020.

We believe these initiatives have and will continue to enable us to increase sales and earnings by increasing the number of shopping trips made by our customers.

We expect to open approximately 350 Dollar Tree stores in fiscal 2020.

We believe that our Dollar Tree initiatives continue to positively affect our comparable store net sales.

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

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

During fiscal 2020, we expanded this program, completing the roll-out to all of our Dollar Tree stores.

The Crafter’s Square assortment carries mark-ups which are higher than our average mark-up.

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.

Based on learnings from the test, we made modifications to:

the mix of products offered to include

primarily discretionary items;

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

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

and increase the number of offerings above the $1 price point.

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

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

Family Dollar Initiatives

As announced in March 2019, we executed a store optimization program in fiscal 2019 for our Family Dollar stores to improve performance.

We are executing several initiatives in our Family Dollar stores to increase sales.

During 2020, we entered into a partnership with Instacart to enable our customers to shop online and receive merchandise without having to visit a store.

In fiscal 2019, we executed a store optimization program for our Family Dollar stores to improve performance.

Included in that program was a roll-out of a new model for both new and renovated Family Dollar stores internally known as H2.

We tested the H2 model in 2018 on a limited basis with positive results.

This H2 model has significantly improved merchandise offerings, including approximately 20 Dollar Tree $1.00 merchandise sections and establishing a minimum number of freezer and cooler doors, throughout the store.

H2 has increased traffic and provided an average comparable store net sales lift in excess of 10% in the first year following renovation.

H2 performs well in a variety of locations and especially in locations where Family Dollar has been most challenged in the past.

We began 2019 with approximately 200 H2 stores and as of February 1, 2020 , we have approximately 1,535 H2 stores.

We plan to renovate approximately 1,250 stores to the H2 format in fiscal 2020.

In addition, we installed adult beverage product in approximately 620 stores in 2019 and plan to add it to approximately 1,000 more stores in 2020.

The H2 model has significantly improved merchandise offerings, including approximately 20 Dollar Tree $1.00 merchandise sections and establishing a minimum number of freezer and cooler doors, throughout the store.

H2 stores have higher customer traffic and provide an average comparable store net sales lift in excess of 10%, when compared to non-renovated stores, in the first year following renovation.

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 January 30, 2021, we have approximately 2,385 H2 stores.

We plan to renovate at least 1,250 stores to this format in fiscal 2021 and also plan to build new stores in this format.

In addition, we installed adult beverage product in approximately 570 stores in fiscal 2020 and plan to add it to approximately 1,000 stores in fiscal 2021.

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

We expect to open approximately 200 Family Dollar stores in fiscal 2020, which are expected to be in the H2 format.

As a part of the fiscal 2019 store optimization program at Family Dollar, we closed 423 under performing stores and incurred approximately $42.5 million in store closure costs related to markdowns, labor and the disposal of fixed assets.

In 2020, we plan to close approximately 100 stores at the end of their lease terms.

We also re-bannered 200 Family Dollar stores to the Dollar Tree brand in 2019.

As part of our continuing integration of Family Dollar’s organization and support functions, in 2019 we consolidated our store support centers in Matthews, North Carolina and Chesapeake, Virginia to our Summit Pointe development in Chesapeake, Virginia.

Approximately 30 percent of the Matthews associates, including more than 50 percent of the officers and directors, invited

to move to Chesapeake agreed to do so.

The consolidation was substantially completed in fiscal 2019 and we incurred pre-tax expense of approximately $28.2 million in 2019 in connection with the consolidation.

Building on the success of the H2 format, we have developed a Combination Store which leverages both the Dollar Tree and Family Dollar brands to serve small towns across the country.

Additionally, the following items have already impacted or could impact our business or results of operations during 2021 or in the future:

The Office of the United States Trade Representative (USTR) previously imposed tariffs under Section 301 against Chinese goods described on Lists 1, 2, and 3 at a rate of 25%.

On September 1, 2019, goods described on List 4A became subject to tariffs at the rate of 15%.

On February 14, 2020, the tariff rate on List 4A goods declined to 7.5%.

During 2019 we were able to negotiate price concessions from vendors on certain products, cancel orders, change product sizes and specifications, change our product mix and change vendors in order to mitigate most of the potential adverse effects of the tariffs under Lists 1, 2 and 3 on the Dollar Tree and Family Dollar segments through January 2020.

Due to the timing of the List 4A tariffs, we were not able to significantly mitigate these tariffs in 2019.

As a result, in the fourth quarter of 2019, Section 301 tariffs increased our costs of goods sold by approximately $29.0 million.

We believe that the annualization of these tariffs under Section 301 will increase cost of goods sold in 2020 by approximately $47.0 million as compared to 2019, with the majority of this increase affecting the first half of 2020.

We will continue to assess the future impact of these tariffs.

We can give no assurances as to the final scope, duration, or impact of any existing or future tariffs.

The tariffs could have a material adverse effect on our business and results of operations in 2020.

We anticipate higher import freight costs continuing into 2020 based on our April 2019 rate negotiations and the commencement in January 2020 of low sulphur fuel requirements for ships.

We also anticipate higher promotional activity in the first quarter of 2020 in the Family Dollar segment as we rebuild our discretionary assortment.

• We are experiencing delays in receiving import merchandise as a result of worldwide container and other equipment shortages and issues with port congestion.

In the United States, the port congestion is resulting in ships not returning to Asia in a timely manner as well as impacting equipment availability.

This is resulting in delays in product being loaded and shipped from overseas locations.

Although this has not yet impacted our sales and we believe we are adequately stocked with merchandise for Easter, the delays could potentially have a material adverse impact on our sales after Easter, especially at Dollar Tree, if the delays do not improve.

In addition to creating business uncertainty, this disruption in the import transportation process is also resulting in higher costs.

We are also seeing increases in the cost to ship domestic freight from our suppliers to our distribution centers.

We are currently projecting approximately $80.0 to $100.0 million of additional costs in fiscal 2021 as a result of higher shipping and domestic freight costs.

• In 2021, the minimum wage has increased 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.

Additional minimum wage increases and other wage and hour law changes in the future could materially impact our results of operations.

• The amount of COVID-19-related costs for premium pay including bonuses, supplies, protective equipment, and similar items was $279.0 million in fiscal 2020;

the amount of these costs for 2021 is highly uncertain.

Among other things, the duration and severity of the pandemic is uncertain, and a number of States and localities are considering legislation that could require premium pay for certain essential workers during certain government mandated restricted work periods.

We must continue to control our merchandise costs, inventory levels and our general and administrative expenses as increases in these items could negatively impact our operating results.

Results of Operations

Cost of sales

Selling, general and administrative expenses, excluding Goodwill

impairment and Receivable impairment

Goodwill impairment

Receivable impairment

Selling, general and administrative expenses

Operating income (loss)

Interest expense, net

Other income, net

Income (loss) before income taxes

Provision for income taxes

Net income (loss)

Fiscal year ended February 1, 2020 compared to fiscal year ended February 2, 2019

Net sales increased 3.5%, or $787.5 million, in 2019 compared to 2018 , resulting from increases in comparable store net sales in the Dollar Tree and Family Dollar segments and sales of $796.3 million at new stores, partially offset by lost

sales resulting from store closures primarily on the Family Dollar segment.

Comparable store net sales increased 1.8% on a constant currency basis as a result of a 1.2% increase in average ticket and a 0.6% increase in customer count.

Comparable store net sales increased the same 1.8% when including the impact of Canadian currency fluctuations.

On a constant currency basis, comparable store net sales increased 2.3% in the Dollar Tree segment and increased 1.4% in the Family Dollar segment.

Our results of operations as a percentage of net sales and year-over-year changes are discussed in the following section.

Year Ended Percentage Change

January 30, February 1, February 2, Fiscal 2020 vs.

(dollars in millions) 2021 2020 2019

Net sales $ 25,509.3 $ 23,610.8 $ 22,823.3 8.0 %

Comparable store net sales change,

on a constant currency basis 6.1 % 1.8 % 1.7 %

The increase in net sales from 2019 to 2020 was a result of comparable store net sales increases in the Family Dollar and Dollar Tree segments and sales of $852.4 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 6.1% on a constant currency basis in 2020, as a result of a 20.0% increase in average ticket and an 11.6% decrease in customer traffic.

Comparable store net sales increased 6.0% when including the impact of Canadian currency fluctuations.

On a constant currency basis, comparable store net sales increased 10.5% in the Family Dollar segment and 2.2% in the Dollar Tree segment.

Lower traffic resulting from the COVID-19 pandemic negatively affected Easter sales in the Dollar Tree segment in the first quarter of fiscal 2020.

Year Ended Percentage Change

January 30, February 1, February 2, Fiscal 2020 vs.

(dollars in millions) 2021 2020 2019

Gross profit $ 7,788.3 $ 7,040.7 $ 6,947.5 10.6 %

Gross profit increased $93.2 million or 1.3%, to $7,040.7 million in 2019 compared to $6,947.5 million in 2018 .

Gross profit margin decreased to 29.8% in 2019 from 30.4% in 2018 .

Our gross profit margin decrease was due to the following:

Merchandise cost, including freight, increased approximately 25 basis points resulting from higher tariffs, higher freight costs, and higher sales of lower margin consumable merchandise, primarily in the Family Dollar segment, partially offset by improved initial mark-on.

Shrink costs increased approximately 15 basis points in 2019 due to unfavorable inventory results, primarily in the Family Dollar segment.

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

Occupancy costs increased approximately 10 basis points resulting from higher real estate tax expense.

Gross profit margin 30.5 % 29.8 % 30.4 % 0.7 %

The increase in gross profit margin from 2019 to 2020 was a result of the net of the following:

• Occupancy costs decreased 40 basis points as a result of the leverage from the increase in comparable store net sales.

• Markdown costs decreased 25 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 of discretionary product.

Both segments also had higher sell-through of both Christmas and Halloween merchandise.

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

• Merchandise cost, including freight, decreased 20 basis points in 2020 compared to 2019 resulting from higher sales of higher margin discretionary merchandise and improved initial mark-on, partially offset by incremental tariff costs of $30.7 million.

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

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

We paid our hourly distribution center associates a wage premium for all hours worked from March 8, 2020 through January 2, 2021.

Total distribution center COVID-19-related expenses were $36.3 million, or 15 basis points of this increase.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased to $5,778.5 million in 2019 from $7,887.0 million in 2018 , a decrease of $2,108.5 million or 26.7%.

Year Ended Percentage Change

January 30, February 1, February 2, Fiscal 2020 vs.

(dollars in millions) 2021 2020 2019

Selling, general and administrative

expenses $ 5,900.4 $ 5,778.5 $ 7,887.0 2.1 %

As a percentage of Net sales 23.1 % 24.5 % 34.5 % (1.4) %

We recorded non-cash goodwill impairment charges of $313.0 million and $2,727.0 million in fiscal 2019 and fiscal 2018, respectively.

The goodwill impairments are discussed further in Note 3 to our consolidated financial statements.

Excluding the goodwill impairment charges in 2019 and 2018, selling, general and administrative expenses increased $305.5 million or 5.9% in 2019 and increased to 23.2% from 22.6%, as a percentage of net sales.

This increase in selling, general and administrative expenses was a result of the following:

Operating and corporate expenses increased approximately 40 basis points resulting from increased costs related to the consolidation of our store support centers, costs related to the disposal of fixed assets due to store closures in conjunction with the Family Dollar store optimization program, higher legal expenses and increased debit and credit fees resulting from higher penetration.

Payroll expenses increased approximately 15 basis points primarily due to average hourly rate increases and additional hours, including higher temporary help expenses, to support store-level initiatives.

These increases were partially offset by decreased retirement plan contributions.

Excluding the goodwill impairment charges in 2019 and 2018, selling, general and administrative expenses were 23.2% and 22.6%, as a percentage of net sales, in 2019 and 2018, respectively.

The decrease in selling, general and administrative expenses, as a percentage of net sales, from 2019 to 2020, excluding the goodwill impairment charge from 2019, was the result of the net of the following:

• Other selling, general and administrative expenses decreased 40 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, lower promotional advertising on the Family Dollar segment, decreases in travel due to the COVID-19 pandemic, lower legal expenses and higher costs in the prior year for the store support center consolidation.

These improvements were partially offset by an increase in store supplies expenses due to the COVID-19 pandemic.

Fiscal 2020 included $26.5 million, or 10 basis points, of costs for the installation of plexiglass sneeze guards at all registers in our stores as well as incremental costs for masks, gloves and cleaning supplies due to the COVID-19 pandemic and $2.7 million of uninsured costs associated with stores damaged in civil unrest.

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

Fiscal 2020 included $1.3 million of COVID-19-related expenses and $4.5 million of expenses for stores damaged in civil unrest.

• Depreciation costs decreased 5 basis points due primarily to the leverage from the comparable store net sales increase.

• Payroll expenses increased 65 basis points primarily due to incremental costs associated with the COVID-19 pandemic and increases in incentive compensation, store sales bonuses and stock compensation expenses 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 wage 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 $212.6 million, or 85 basis points.

Operating Income (Loss)

Operating income was $1,262.2 million in 2019 compared to an operating loss of $939.5 million in 2018 .

Excluding the non-cash goodwill impairment charges in 2019 and 2018, operating income decreased to $1,575.2 million in 2019 compared with $1,787.5 million in 2018 and operating income margin decreased to 6.7% in 2019 from 7.8% in 2018 due to the reasons noted above.

Year Ended Percentage Change

January 30, February 1, February 2, Fiscal 2020 vs.

(dollars in millions) 2021 2020 2019

Operating income (loss) $ 1,887.9 $ 1,262.2 $ (939.5) 49.6 %

Operating income margin 7.4 % 5.3 % (4.1) % 2.1 %

Excluding the non-cash goodwill impairment charges in 2019 and 2018, operating income margin was 6.7% in 2019 and 7.8% in 2018.

Operating income margin increased to 7.4% in fiscal 2020 compared to 6.7% in fiscal 2019, excluding the goodwill impairment charge, as operating income margin in the Family Dollar segment increased 330 basis points, partially offset by a 140 basis point decrease in the Dollar Tree segment operating income margin.

Operating income in fiscal 2020 includes $279.0 million of COVID-19-related expenses and $18.2 million of uninsured expenses related to civil unrest.

Interest Expense, Net

Interest expense, net was $162.1 million in 2019 compared to $370.0 million in 2018 .

The prior year included prepayment premiums totaling $114.3 million and the acceleration of the expensing of $41.2 million of amortizable non-cash deferred financing costs related to the debt refinancing in the first quarter of 2018.

In addition, our 2018 debt refinancing resulted in lower interest rates and the prepayment of the $782.0 million Term Loan Facility in the fourth quarter of 2018 resulted in our having less debt outstanding.

Income taxes .

Our effective tax rate in 2019 was 24.7% compared to 21.5% in 2018 .

The increase in 2019 is a result of the effect of the goodwill impairment charges in 2019 and 2018 that are not tax deductible.

The 2019 effective tax rate includes the benefit of the reversal of a valuation allowance of $24.6 million.

The 2018 effective tax rate includes an additional benefit of $16.2 million related to the completion of our analysis of the tax effects of the Tax Cuts and Jobs Act (“TCJA”).

Year Ended Percentage Change

January 30, February 1, February 2, Fiscal 2020 vs.

(dollars in millions) 2021 2020 2019

Interest expense, net $ 147.3 $ 162.1 $ 370.0 (9.1) %

Interest expense, net decreased $14.8 million in fiscal 2020 compared to the prior year, resulting from lower average debt outstanding in the current year, partially offset by lower interest income.

In fiscal 2018, we refinanced our debt, resulting in the acceleration of the expensing of $41.2 million of amortizable non-cash deferred financing costs and prepayment penalties totaling $114.3 million.

Provision for Income taxes

Year Ended Percentage Change

January 30, February 1, February 2, Fiscal 2020 vs.

(dollars in millions) 2021 2020 2019

Provision for income taxes $ 397.9 $ 271.7 $ 281.8 46.4 %

Effective tax rate 22.9 % 24.7 % 21.5 % (1.8) %

The effective tax rate for 2020 was 22.9% compared to 24.7% for 2019.

The 2020 effective rate decreased compared to the prior year rate as the $313.0 million goodwill impairment charge in 2019 was not tax deductible.

Partially offsetting that decrease, 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 effective tax rate also includes the benefit of the reversal of a valuation allowance of $24.6 million.

Segment Information

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The CODM reviews these metrics for each of our reporting segments.

We may revise the measurement of each segment’s

operating income, as determined by the information regularly reviewed by the CODM.

We may revise the measurement of each segment’s operating income, as determined by the information regularly reviewed by the CODM.

If the measurement of a segment changes, prior period amounts and balances are reclassified to be comparable to the current period’s presentation.

In the current year, we identified Corporate and support costs, mainly store support center costs that are considered shared services, and excluded these selling, general and administrative costs from our two reporting business segments.

Corporate, support and Other consists primarily of store support center costs that are considered shared services and therefore these selling, general and administrative costs are excluded from our two reporting business segments.

These costs include operating expenses for our store support centers in Chesapeake, Virginia and Matthews, North Carolina.

During fiscal 2019, we consolidated our Matthews, North Carolina store support center with our store support center in Chesapeake, Virginia.

We continue to own our facility in Matthews, North Carolina.

Corporate, support and Other also includes the results of operations for our Summit Pointe property in Chesapeake, Virginia.

Prior year amounts have been reclassified to be comparable to the current year presentation.

The following table summarizes the operating results of the Dollar Tree segment:

February 1, 2020

February 2, 2019

February 3, 2018

(in millions)

Year Ended Percentage Change

January 30, 2021 February 1, 2020 February 2, 2019 Fiscal 2020 vs.

(in millions) $ % of

Net Sales $ % of

Net sales $ 13,265.0 $ 12,507.9 $ 11,712.1

Gross profit 4,543.8 34.3 % 4,342.9 34.7 % 4,137.5 35.3 % (0.4) %

Operating income 1,598.0 12.0 % 1,670.2 13.4 % 1,657.4 14.2 % (1.4) %

Fiscal year ended February 1, 2020 compared to fiscal year ended February 2, 2019

Net sales for the Dollar Tree segment increased 6.8%, or $795.8 million in 2019 compared to 2018 due to sales from new stores of $586.9 million and a comparable store net sales increase of 2.3% on a constant currency basis resulting from increases in customer count and average ticket of 1.3% and 1.0% , respectively.

Net sales for the Dollar Tree segment increased 6.1%, or $757.1 million, in 2020 compared to 2019 due to sales from new stores of $591.0 million and a 2.2% increase in comparable store net sales.

Average ticket increased 17.9% and customer traffic declined 13.3% in 2020.

Gross profit margin for the Dollar Tree segment decreased to 34.3% in 2020 from 34.7% in 2019.

The decrease is due to the following:

Merchandise cost, including freight, increased approximately 40 basis points primarily due to higher tariffs and higher freight costs, partially offset by improved initial mark-on.

Distribution costs increased approximately 10 basis points primarily due to higher distribution center payroll and depreciation costs.

The decrease is due to 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 wage premium for all hours worked from March 8, 2020 through January 2, 2021.

Total distribution center COVID-19-related expenses were $21.3 million, or 15 basis points of this increase.

• Shrink costs increased 5 basis points resulting from unfavorable physical inventory results in relation to accruals in the current year and an increase in the shrink accrual rate.

• Markdown costs were flat as a percentage of net sales compared to the prior year as lower markdowns from higher seasonal merchandise sell-through in the third and fourth quarters of 2020 were offset by higher markdowns from the lower sell-through of Easter merchandise as a result of the COVID-19 pandemic in the first quarter of 2020, and $2.9 million of uninsured markdown costs for stores affected by civil unrest.

• Merchandise cost, including freight, decreased 10 basis points primarily due to increased sales of higher margin discretionary merchandise and increased initial mark-on, partially offset by incremental tariffs of $23.7 million.

Discretionary merchandise sales were a higher proportion of total sales in the second, third and fourth 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 decreased to 12.0% in 2020 compared to 13.4% in 2019.

The decrease in operating income margin in 2019 was the result of lower gross profit margin as noted above and increased selling, general and administrative expenses.

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

Selling, general and administrative expenses, as a percentage of net sales, increased to 22.3% in 2020 compared to 21.3% in 2019 as a result of the net of the following:

Payroll expenses increased approximately 15 basis points due to higher store hourly payroll costs resulting from average hourly rate increases and additional hours to support store-level initiatives, partially offset by lower retirement plan expense.

Operating expenses increased approximately 10 basis points primarily due to increased debit and credit fees resulting from higher debit and credit card penetration in the current year.

• Payroll expenses increased 100 basis points primarily due to incremental costs associated with the COVID-19 pandemic and higher incentive compensation and store sales bonuses.

Incremental payroll costs associated with the COVID-19 pandemic included a wage 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 $124.2 million, or 95 basis points, in fiscal 2020.

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

• Other selling, general and administrative expenses decreased 5 basis points as a result of decreased travel costs due to the COVID-19 pandemic and lower legal expenses, partially offset by an increase in store supplies costs resulting from the COVID-19 pandemic.

Fiscal 2020 includes $14.9 million, or 10 basis points, of costs for the installation of plexiglass sneeze guards at all registers in our stores as well as 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.

Fiscal 2020 includes $1.7 million of expenses for repairs to stores damaged in civil unrest.

Operating income in fiscal 2020 includes $161.1 million of COVID-19-related expenses and $5.4 million of uninsured costs related to civil unrest.

Family Dollar

The following table summarizes the operating results of the Family Dollar segment:

February 1, 2020

February 2, 2019

February 3, 2018

(in millions)

Year Ended Percentage Change

January 30, 2021 February 1, 2020 February 2, 2019 Fiscal 2020 vs.

(in millions) $ % of

Net Sales $ % of

Net sales $ 12,243.4 $ 11,102.9 $ 11,111.2

Gross profit 3,243.6 26.5 % 2,697.8 24.3 % 2,810.0 25.3 % 2.2 %

Operating income (loss) 655.6 5.4 % (74.9) (0.7) % (2,312.8) (20.8) % 6.1 %

Fiscal year ended February 1, 2020 compared to fiscal year ended February 2, 2019

Net sales for the Family Dollar segment decreased $8.3 million or 0.1% in 2019 compared to 2018 as a result of the store closures associated with the store optimization program.

The lost sales were partially offset by a comparable store net sales increase of 1.4% and $209.4 million of new stores sales.

Average ticket increased 1.8% and customer count decreased 0.4% in 2019.

Gross profit for the Family Dollar segment decreased $112.2 million or 4.0% in 2019 compared to 2018 .

The gross profit margin for Family Dollar decreased to 24.3% in 2019 compared to 25.3% in 2018 .

The decrease is due to the following:

Merchandise cost, including freight, increased approximately 40 basis points, primarily due to higher sales of lower margin consumable merchandise and higher freight costs, partially offset by higher initial mark-on.

Shrink costs increased approximately 30 basis points resulting from unfavorable physical inventory results in the current year.

Distribution costs increased approximately 15 basis points resulting primarily from higher merchandising and distribution payroll-related costs.

Occupancy costs increased approximately 15 basis points resulting primarily from higher real estate tax expense.

Operating loss margin for the Family Dollar segment decreased to 0.7% in 2019 from 20.9% in 2018.

The operating losses in 2019 and 2018 were the result of $313.0 million and $2,727.0 million non-cash goodwill impairment charges, respectively.

Excluding the goodwill impairment charges in 2019 and 2018, operating income margin for the Family Dollar segment decreased to 2.1% in 2019 from 3.7% in 2018, due to the gross profit margin decrease noted above and increased selling, general and administrative expenses, as a percentage of net sales.

Excluding the goodwill impairments in 2019 and 2018, selling, general and administrative expenses, as a percentage of net sales, were 22.2% in 2019, compared to 21.6% in 2018.

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

Operating expenses increased approximately 45 basis points resulting primarily from higher costs related to the disposal of fixed assets in connection with the store optimization program, higher legal expenses, higher debit and credit fees resulting from higher debit and credit card penetration and higher store supplies expense to support the H2 initiative.

Payroll expenses increased approximately 15 basis points primarily due to average hourly rate increases and additional hours, including increased temporary help expenses, to support store-level initiatives, partially offset by lower insurance expenses.

Net sales for the Family Dollar segment increased $1,140.5 million or 10.3% in 2020 compared to 2019 due to a comparable store net sales increase of 10.5% and $261.4 million of new store sales, partially offset by lost sales resulting from store closures during

fiscal 2019 in connection with our store optimization program.

Average ticket increased 21.5% and customer traffic declined 9.1% in 2020.

Gross profit margin for the Family Dollar segment increased to 26.5% in 2020 compared to 24.3% in 2019.

The increase is due to the net of the following:

• Occupancy costs decreased 80 basis points as a result of the leverage from the comparable store net sales increase.

• Markdowns at cost decreased 55 basis points primarily due to higher store closure and clearance sale markdowns in the prior year and lower promotional activity in the current year as a result of the increase in sales of discretionary product.

Family Dollar also had higher sell-through of both Christmas and Halloween merchandise.

These markdown reductions were partially offset by $7.5 million of uninsured markdown costs for stores affected by civil unrest.

• Merchandise cost, including freight, decreased 50 basis points primarily due to increased sales of higher margin discretionary merchandise and improved initial mark-on, partially offset by incremental tariffs of $7.1 million.

• Shrink expense decreased 45 basis points resulting from favorable physical inventory results in relation to accruals in the current year and a decrease in the accrual rate compared to an increase in the accrual rate in the prior year.

• Distribution costs increased 5 basis points resulting primarily from higher distribution center payroll costs.

We paid our hourly distribution center associates a wage premium for all hours worked from March 8, 2020 through January 2, 2021.

Total distribution center COVID-19-related expenses were $15.0 million, or 10 basis points of this increase.

Excluding the $313.0 million and $2,727.0 million non-cash goodwill impairment charges in 2019 and 2018, respectively, operating income margin for the Family Dollar segment was 2.1% in 2019 and 3.7% in 2018.

Operating income margin increased to 5.4% in fiscal 2020 compared to 2.1% in fiscal 2019, excluding the goodwill impairment charge, 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 21.1%, as a percentage of net sales, in 2020 compared to 22.2% in 2019, excluding the goodwill impairment charge.

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 60 basis points primarily due to a decrease in promotional advertising, less 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, lower legal expenses, and leverage associated with the increase in comparable store net sales during the period, partially offset by an increase in store supplies expense.

Fiscal 2020 included $11.6 million or 10 basis points of costs for the installation of plexiglass sneeze guards at all registers in our stores as well as incremental costs for masks, gloves and cleaning supplies due to the COVID-19 pandemic and $2.1 million of expenses primarily for fixed asset disposals for stores damaged by civil unrest.

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

Fiscal 2020 included $2.8 million of incremental repairs and maintenance expenses for stores damaged by civil unrest.

• Depreciation and amortization expense decreased 15 basis points primarily due to leverage from the comparable store net sales increase.

• Payroll expenses decreased 5 basis points 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 more than offset by leverage from the comparable store net sales increase, lower temporary help expenses as a result of the prior year including higher expenses to support store-level initiatives, a decrease in workers’ compensation expenses and lower benefits costs.

Incremental costs associated with the COVID-19 pandemic, including a wage 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 $88.4 million or 70 basis points.

Operating income in fiscal 2020 includes $115.5 million for COVID-19-related expenses and $12.8 million of uninsured costs related to civil unrest.

Liquidity and Capital Resources

Our business requires capital to build and open new stores, expand our distribution network and operate and expand our existing stores.

Our business requires capital to build and open new stores, expand and renovate existing stores, expand our distribution network and operate our existing stores.

Our working capital requirements for existing stores are seasonal in nature and typically reach their peak in the months of September and October.

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 years ended February 1, 2020 , February 2, 2019 and February 3, 2018 :

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 years ended January 30, 2021, February 1, 2020 and February 2, 2019:

January 30, February 1, February 2,

(in millions) 2021 2020 2019

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Operating Activities

Net cash provided by operating activities increased $103.8 million in 2019 compared to 2018 primarily as a result of lower cash payments for inventory, partially offset by lower current year earnings, net of non-cash items and a decrease in accounts payable.

Net cash provided by operating activities increased $846.5 million in 2020 compared to 2019 primarily as a result of higher accounts payable, current liabilities and other liabilities and lower inventory levels at January 30, 2021, and higher earnings before depreciation and amortization in the current year.

Investing Activities

Net cash used in investing activities increased $203.5 million in 2019 compared with 2018 primarily due to increased capital expenditures related to the Family Dollar segment store optimization program, including H2 renovations and re-banners, partially offset by grant money received from state and local governments for our Summit Pointe development.

Net cash used in investing activities decreased $130.5 million in 2020 compared with 2019 primarily due to 2019 including higher capital expenditures related to the Family Dollar segment store optimization program, including H2 renovations and re-banners.

H2 renovations were 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.

Financing Activities

Net cash used in financing activities decreased $890.1 million in 2019 compared to 2018 primarily due to our debt refinancing in 2018, which resulted in debt payments exceeding the proceeds of long-term debt by $656.9 million and the payment of $155.3 million of debt-issuance and extinguishment costs.

We also prepaid the $782.0 million term loan facility in fiscal 2018.

In fiscal 2019, we prepaid $500.0 million of our $750.0 million Floating Rate Notes and paid $200.0 million for 2019 stock repurchases.

At February 1, 2020 , our long-term borrowings were $3.8 billion and we had $1.25 billion available under our revolving credit facility, less amounts outstanding for standby letters of credit totaling $136.9 million .

Net cash used in financing activities increased $240.1 million in 2020 compared to 2019 primarily due to $400.0 million of stock repurchases in 2020 compared to $200.0 million in 2019.

In 2020, we also repaid the remaining $250.0 million of our $750.0 million Floating Rate Notes and the $300.0 million 5% Senior Notes.

In fiscal 2019, we prepaid $500.0 million of our $750.0 million Floating Rate Notes.

At January 30, 2021, our long-term borrowings were $3.25 billion and we had $1.25 billion available under our revolving credit facility, less amounts outstanding for standby letters of credit totaling $98.7 million.

For additional detail on our long-term borrowings and other commitments, refer to the discussion of Funding Requirements below, as well as Note 5 and Note 6 to our consolidated financial statements.

Share Repurchases

We repurchased 1,967,355 shares of common stock on the open market for $200.0 million in fiscal 2019 .

There were no shares repurchased on the open market in fiscal 2018 or 2017 .

At February 1, 2020 , we have $800.0 million remaining under Board repurchase authorization.

We repurchased 3,982,478 shares of common stock on the open market for $400.0 million in fiscal 2020 and we repurchased 1,967,355 shares of common stock on the open market for $200.0 million in fiscal 2019.

There were no shares repurchased in fiscal 2018.

At January 30, 2021, we had $400.0 million remaining under Board repurchase authorization.

Subsequently, on March 2, 2021, the Board increased the share repurchase authorization by $2.0 billion resulting in a total share repurchase authorization of $2.4 billion.

Funding Requirements

We expect our cash needs for opening new stores and expanding and renovating existing stores in fiscal 2021 to total approximately $592.7 million, which includes capital expenditures, initial inventory and pre-opening costs.

Our estimated capital expenditures for fiscal 2020 are approximately $1.2 billion, including planned expenditures for our new and expanded stores, approximately 1,250 planned H2 renovations of Family Dollar segment stores, the construction of two new distribution centers and the development of additional parcels on our Summit Pointe property, located in Chesapeake, Virginia, for mixed-use purposes.

Our estimated capital expenditures for fiscal 2021 are approximately $1.2 billion, including planned expenditures for our new and expanded stores, approximately 1,250 planned H2 renovations of Family Dollar segment stores, distribution center expansions and the development of additional parcels on our Summit Pointe property, located in Chesapeake, Virginia, for mixed-use purposes.

We believe that we can adequately fund our working capital requirements and planned capital expenditures for the foreseeable future from net cash provided by operations and potential borrowings under our revolving credit facility.

The following tables summarize our material contractual obligations at February 1, 2020 , including both on- and off-balance sheet arrangements, and our commitments, including interest on long-term borrowings (in millions):

Contractual Obligations

The following tables summarize our material contractual obligations at January 30, 2021, including both on- and off-balance sheet arrangements, and our commitments, including interest on long-term borrowings (in millions):

Contractual Obligations Total 2021 2022 2023 2024 2025 Thereafter

Lease Financing

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Long-term Borrowings

Principal 3,250.0 — — 1,000.0 — 1,000.0 1,250.0

Interest 639.2 129.1 129.1 104.8 92.0 64.1 120.1

Total obligations $ 11,348.7 $ 1,609.2 $ 1,525.5 $ 2,288.9 $ 1,057.0 $ 1,795.3 $ 3,072.8

Expiring in 2020

Expiring in 2021

Expiring in 2022

Expiring in 2023

Expiring in 2024

Commitments Total Expiring in 2021 Expiring in 2022 Expiring in 2023 Expiring in 2024 Expiring in 2025 Thereafter

Letters of credit and surety bonds $ 404.8 $ 378.5 $ 25.7 $ 0.5 $ 0.1 $ — $ —

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Refer to Note 7 to our consolidated financial statements for information on our operating leases.

The obligation above includes amounts for leases that were signed prior to February 1, 2020 for stores that were not yet open on February 1, 2020 .

The obligation above includes amounts for leases that were signed prior to January 30, 2021 for stores that were not yet open on January 30, 2021.

Long-term Borrowings

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We also entered into a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, providing for $2.03 billion in senior credit facilities, consisting of a $1.25 billion revolving credit facility and a $782.0 million term loan facility.

We used the proceeds of these borrowings and cash on hand to repay all of the outstanding loans under our then-existing senior secured credit facilities and acquisition notes, resulting in the acceleration of the expensing of $41.2 million of deferred financing costs and the incurrence of $114.3 million in prepayment penalties.

In the fourth quarter of 2018, we prepaid in full the $782.0 million term loan facility and in the fourth quarter of 2019, we prepaid $500.0 million of the $750.0 million Senior Floating Rate Notes due 2020.

In addition, upon the acquisition of Family Dollar in 2015, we assumed the liability for $300.0 million of 5.00% senior notes due February 1, 2021.

The interest on our long-term borrowings represents the interest payments on the foregoing long-term borrowings that were outstanding at February 1, 2020 using the interest rates for each at February 1, 2020 .

We used the proceeds of these borrowings and cash on hand to repay all of the outstanding loans under our then-existing senior secured credit facilities and acquisition notes, resulting in the acceleration of the expensing of $41.2 million of deferred financing costs and our incurring $114.3 million in prepayment penalties.

In the fourth quarter of 2018, we prepaid in full the $782.0 million term loan facility.

In the fourth quarter of 2019, we prepaid $500.0 million of the $750.0 million Senior Floating Rate Notes and repaid the remaining $250.0 million outstanding in the first quarter of 2020.

In addition, upon the acquisition of Family Dollar in 2015, we assumed the liability for $300.0 million of 5.00% senior notes, which we repaid in the fourth quarter of 2020.

The interest on our long-term borrowings represents the interest payments on the foregoing long-term borrowings that were outstanding at January 30, 2021 using the interest rates for each at January 30, 2021.

For additional information on our long-term borrowings, please refer to Note 6 to our consolidated financial statements.

Letters of credit and surety bonds .

We have $330.0 million in Letter of Credit Reimbursement and Security Agreements with various financial institutions, under which approximately $134.7 million was committed to letters of credit issued for routine purchases of imported merchandise at February 1, 2020 .

We also have approximately $136.9 million of letters of credit outstanding that serve as collateral for our large-deductible insurance programs and $69.3 million of surety bonds outstanding primarily for certain utility payment obligations at some of our stores and self-insured insurance programs.

We have $356.5 million in Letter of Credit Reimbursement and Security Agreements with various financial institutions, under which $209.6 million was committed to letters of credit issued for routine purchases of imported merchandise at January 30, 2021.

We also have $98.7 million of letters of credit outstanding that serve as collateral for our large-deductible insurance programs and $96.5 million of surety bonds outstanding primarily for certain utility payment obligations at some of our stores and self-insured insurance programs.

Purchase obligations.

We have commitments totaling approximately $123.2 million related to agreements for software licenses and support, telecommunication services and store technology assets and maintenance for our stores.

We have commitments totaling $189.8 million related to agreements for software licenses and support, telecommunication services and store technology assets and maintenance for our stores.

Critical Accounting Policies

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Under the retail inventory method, the valuation of inventories at cost and the resulting gross margins are computed by applying a calculated cost-to-retail ratio to the retail value of inventories.

The retail inventory method is an averaging method that is widely used in the retail industry and results in valuing inventories at lower of cost or net realizable value when markdowns are taken as a reduction of the retail value of inventories on a timely basis.

The retail inventory method is an averaging method that is widely used in the retail industry and results in valuing inventories at lower of cost or market when markdowns are taken as a reduction of the retail value of inventories on a timely basis.

Inventory valuation methods require certain management estimates and judgments, including estimates of future merchandise markdowns and shrink, which significantly affect the ending inventory valuation at cost as well as the resulting gross margins.

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We estimate our markdown reserve based on the consideration of a variety of factors, including, but not limited to, quantities of slow moving or seasonal carryover merchandise on hand, historical markdown statistics and future merchandising plans.

The accuracy of our estimates can be affected by many factors, some of which are outside of our control, including changes in economic

conditions and consumer buying trends.

The accuracy of our estimates can be affected by many factors, some of which are outside of our control, including changes in economic conditions and consumer buying trends.

Historically, we have not experienced significant differences in our estimated reserve for markdowns compared with actual results.

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Our physical inventory counts are generally taken between January and October of each year;

therefore, the shrink accrual recorded at February 1, 2020 is based on estimated shrink for most of 2019, including the fourth quarter.

therefore, the shrink accrual recorded at January 30, 2021 is based on estimated shrink for most of 2020, including the fourth quarter.

The amounts recorded in the current year reflect the Dollar Tree and Family Dollar segments’ historical results.

We periodically adjust our shrink estimates to reflect our best estimates based on the factors described.

Our management believes that our application of the retail inventory method results in an inventory valuation that reasonably approximates cost and results in carrying inventory at the lower of cost or net realizable value each year on a consistent basis.

Self-Insurance Liabilities

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Under the discounted cash flow approach, we project future cash flows which are discounted using a weighted-average cost of capital analysis that reflects current market conditions, adjusted for specific reporting unit risks (primarily the uncertainty of achieving projected operating cash flows).

If the carrying amount of a reporting unit exceeds its estimated fair value, an impairment loss is recognized in an amount equal to that excess.

the carrying amount of a reporting unit exceeds its estimated fair value, an impairment loss is recognized in an amount equal to that excess.

The Family Dollar goodwill and trade name comprise a substantial portion of our goodwill and indefinite-lived intangible assets and management’s judgment utilized in the Family Dollar goodwill and trade name impairment evaluations is critical.

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Given current economic conditions, it is possible that the discount rate will fluctuate in the near term.

We engaged third party experts to assist in the determination of the weighted-average cost of capital used to discount the

cash flows for our Family Dollar reporting unit.

We engaged third party experts to assist in the determination of the weighted-average cost of capital used to discount the cash flows for our Family Dollar reporting unit.

The weighted-average cost of capital used to discount the cash flows for our evaluation was 8.25% for our fiscal 2020 analysis.

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The discount rate includes a premium compared to the discount used for the Family Dollar goodwill impairment evaluation due to the inherently higher risk profile of intangible assets compared to the overall reporting unit.

Our impairment evaluations of goodwill resulted in non-cash impairment charges of $313.0 million and $2.73 billion in fiscal 2019 and 2018, respectively, related to the Family Dollar reporting unit.

No goodwill impairment charges were recorded in fiscal 2017.

Our evaluation of goodwill did not result in an impairment charge being recorded in fiscal 2020.

Non-cash impairment charges of $313.0 million and $2.73 billion were recorded in fiscal 2019 and 2018, respectively, related to the Family Dollar reporting unit.

Our evaluation of the Family Dollar trade name did not result in impairment charges during fiscal 2020, 2019 or 2018.

Based on the result of the evaluation, the fair value of the Family Dollar trade name was within 1.5% of its carrying value.

For additional information on goodwill and indefinite-lived intangible assets, including the related impairment evaluations, refer to Note 3 to our consolidated financial statements.

For additional information on uncertainties associated with the key assumptions and any potential events and/or circumstances that could have a negative effect on the key assumptions, please refer to “ Item 1A.

Based on the results of the 2020 evaluation, the fair value of the Family Dollar reporting unit exceeded its carrying value by a significant margin and the fair value of the Family Dollar trade name exceeded its carrying value by approximately 7.5%.

For additional information related to goodwill and indefinite-lived intangible assets, including the related impairment evaluations, refer to Note 3 to our consolidated financial statements.

For additional information related to uncertainties associated with the key assumptions and any potential events and/or circumstances that could have a negative effect on the key assumptions, please refer to “ Item 1A.

Risk Factors ” and elsewhere within this “Item 7.

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Any impairment charges that we may take in the future could be material to our results of operations and financial condition.

Recent Accounting Pronouncements

See Note 1 to our consolidated financial statements for a detailed description of recent accounting pronouncements.

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-K

Item 7. Management’s Discussion and Analysis