What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-23 compared with 2021-08-26 · 211 added, 176 removed, 196 unchanged (66% of the section changed)

9 unchanged sentences

• The reliability of, and cost associated with, our sources of supply, particularly imported goods sourced from Asia and higher cost domestic goods;

• Our plans to address the labor shortage at our distribution centers;

• Our expectations regarding increases in the minimum wage by States and localities, potential federal legislation increasing the minimum wage, and proposals to raise federal corporate tax rates;

• The potential effect of general business or economic conditions on our business including the direct and indirect effects of the COVID-19 pandemic, inflation, labor shortages, consumer spending levels, unemployment, 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, and increased expenses for higher wages and bonuses paid to associates;

• Our plans to address the labor shortages at our distribution centers and stores;

• Our expectations regarding increased expenses for higher wages and bonuses paid to associates, including increases in the minimum wage by States and localities and potential federal legislation increasing the minimum wage;

• Our expectations regarding reductions in COVID-19-related expenses and the level of shrink in fiscal 2021;

• Our plans to renovate existing Family Dollar stores and build new stores in the H2 store format, including an increase in the number of stores with adult beverages, and the performance of that format on our results of operations;

• Our plans and expectations relating to the introduction of additional price points above $1 in our Dollar Tree stores;

• Our plans and expectations relating to new store openings and the adoption, testing, implementation and performance of new store concepts such as Dollar Tree Plus and our Combo Store format;

• Our expectations regarding higher commodity and other costs associated with the build-out of new stores and the renovation of existing stores, and construction, permitting and inspection delays related to new store openings;

• The expected and possible outcome, costs, and impact of pending or potential litigation, arbitrations, other legal proceedings or governmental investigations (including the proceeding by the Food and Drug Administration).

6 unchanged sentences

• Our profitability is vulnerable to increases in oceanic shipping costs, domestic freight and fuel costs, higher wages, substitution of higher cost domestic goods and increases in other operating costs.

• The labor shortage at our distribution centers has had and could have an adverse impact on the operating efficiency of our distribution centers and our ability to transport merchandise to our stores, and could result in lower sales.

• The labor shortages at our distribution centers and stores has had and could have an adverse impact on the operating efficiency of our distribution centers and our ability to transport merchandise to and operate our stores, and could result in lower sales.

• If the COVID-19 pandemic in North America or at our sources of supply overseas worsens or continues longer than expected, there could be a material adverse impact on our business and results of operations.

• Inflation or other adverse change or downturn in economic conditions could impact our sales or profitability.

• Inflation or other adverse change or downturn in economic conditions could adversely impact our sales or profitability.

• 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, for example because government assistance to households and businesses terminate or are reduced.

• We may not be successful in implementing important strategic initiatives, and our plans for implementing such initiatives may be delayed due to various factors, including shipping delays, supply chain disruptions and other factors that could affect the availability of adequate levels of necessary domestic and imported merchandise, which may have an adverse impact on our business and financial results.

• We may not be successful in implementing or in anticipating the impact of important strategic initiatives, and our plans for implementing such initiatives may be altered or delayed due to various factors, including lack of customer acceptance, shipping delays, supply chain disruptions and other factors that could affect the timeliness, cost or availability of adequate levels of necessary domestic and imported merchandise, which may have an adverse impact on our business and financial results.

• Duties, tariffs or other restrictions on trade could adversely affect our financial performance.

18 unchanged sentences

Easter sales were strong in both banners during 2021.

Our results of operations for the first half of fiscal 2020 include approximately $208.0 million of COVID-19-related expenses;

these expenses totaled $10.4 million in the first half of fiscal 2021.

Our results of operations through the third quarter of fiscal 2020 include approximately $254.3 million of COVID-19-related expenses;

these expenses totaled $22.1 million through the third quarter of fiscal 2021.

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

The course of the pandemic, including the spread of the Delta variant, 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.

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 and the global supply chain, it is challenging to predict our future operations and financial results.

spending at levels experienced during the first nine months of fiscal 2021.

For example, although the American Rescue Plan Act of 2021 (“Rescue Act”), which was enacted on March 11, 2021, provided U.S.

government funding to address the continuing impact of COVID-19 on the economy, public health, individuals and businesses, some of the enacted benefits, including $1,400 direct payments to individuals and supplemental unemployment benefits, were temporary and have been discontinued.

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 and the global supply chain, it is challenging to predict our future operations and financial results.

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

12 unchanged sentences

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 July 31, 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 26 weeks ended July 31, 2021 and August 1, 2020 is as follows:

At October 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 39 weeks ended October 30, 2021 and October 31, 2020 is as follows:

39 Weeks Ended

July 31, 2021 August 1, 2020

October 30, 2021 October 31, 2020

Dollar Tree Family Dollar Total Dollar Tree Family Dollar Total

13 unchanged sentences

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

The average size of stores opened during the 26 weeks ended July 31, 2021 was approximately 8,530 selling square feet for the Dollar Tree segment and 9,030 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 July 31, 2021, as compared with the preceding year, is as follows:

13 Weeks Ended July 31, 2021 26 Weeks Ended July 31, 2021

The average size of stores opened during the 39 weeks ended October 30, 2021 was approximately 8,760 selling square feet for the Dollar Tree segment and 8,960 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 39 weeks ended October 30, 2021, as compared with the preceding year, is as follows:

13 Weeks Ended October 30, 2021 39 Weeks Ended October 30, 2021

Sales Growth Change in

11 unchanged sentences

Dollar Tree Initiatives

We are continuing to implement our Dollar Tree Plus initiative which adds a multi-price product assortment to the traditional everything-is-one-dollar format.

This concept introduces products priced at the $3 and $5 price points and provides our customers with extraordinary value in discretionary categories.

As of July 31, 2021, we have approximately 310 Dollar Tree Plus stores and expect to achieve our target of 500 stores by the end of fiscal 2021.

Following the announcement of our new pricing initiative in September 2021, we increased the price point on a majority of our $1 merchandise to $1.25 in more than 100 legacy Dollar Tree stores by October 30, 2021.

We have continued the rollout in November to additional stores and plan to expand the $1.25 price point initiative to more than 2,000 additional Dollar Tree stores in December 2021, and expect to complete the rollout of this initiative to all Dollar Tree stores by the end of the first quarter of fiscal 2022.

We believe that the new pricing strategy will enable us to introduce new products and expand our merchandise assortment in Dollar Tree stores while maintaining great value for our customers.

We are also continuing to implement our Dollar Tree Plus initiative which introduces products priced at the $3 and $5 price points and provides our customers with extraordinary value in discretionary categories.

As of October 30, 2021, we have approximately 460 Dollar Tree Plus stores and expect to have nearly 600 stores by the end of fiscal 2021, exceeding our previous target of 500 stores.

We also plan to accelerate the implementation of the Dollar Tree Plus initiative in fiscal 2022 by adding the concept to an additional 1,500 stores.

1 unchanged sentence

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

After a successful launch of the Instacart platform in the Family Dollar segment, we began testing the online service delivery at Dollar Tree stores in the third quarter of fiscal 2021.

As of October 30, 2021, the Instacart platform covers almost 7,000 Dollar Tree stores.

This enables our customers to shop online and receive same-day delivery without having to visit a store.

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

4 unchanged sentences

The Combo store provides another way to introduce the multi-price assortment to Dollar Tree customers and the one-dollar assortment to Family Dollar customers.

As of July 31, 2021, we had 105 Combo Stores in operation.

As of October 30, 2021, we had 155 Combo Stores in operation.

Due to the success of the initiative, we plan to accelerate expansion of the program in fiscal 2022, and anticipate adding 400 new, renovated, or relocated Combo Stores in fiscal 2022.

We are also in the process of validating the Combo Store concept in other demographic markets.

After a successful pilot program in 2020, we entered into a partnership with Instacart, an online merchandise delivery platform, in February 2021 that enables our Family Dollar customers to shop online and receive same-day delivery of merchandise without having to visit a store.

The Instacart platform covers more than 6,000 Family Dollar stores across the United States.

The Instacart platform covers approximately 6,000 Family Dollar stores across the United States.

We are also continuing to execute our store optimization programs.

1 unchanged sentence

These stores have higher customer traffic and provide a higher average comparable store net sales lift, 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 July 31, 2021, we have approximately 3,300 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.

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 October 30, 2021, we have approximately 3,750 H2 stores.

We have renovated more than 1,250 stores to this format in fiscal 2021 and have also built new stores in this format.

In addition, we plan to add adult beverage to 185 stores in fiscal 2021.

3 unchanged sentences

• Shipping Delays.

We rely heavily on Trans-Pacific shipping to acquire merchandise for our stores, and we are experiencing significant shipping delays as a result of the shipping capacity shortage.

We rely heavily on Trans-Pacific shipping to acquire merchandise for our stores, and we are experiencing significant shipping delays as a result of the shipping capacity shortage which have negatively impacted our sales and the availability of product in the stores.

We are also experiencing issues with port congestion and pandemic-related port closings and ship diversions.

If the shipping delays do not improve they could potentially have a material adverse impact on product availability and product mix, and on our sales and merchandise margin.

Sales could be negatively impacted if imported goods do not arrive in time to stock our stores.

If the shipping delays do not improve they would continue to have a material adverse impact on product availability and product mix, and on our sales and merchandise margin.

Sales could be negatively impacted if imported goods do not arrive in time to stock our stores, including the timely delivery of adequate levels of seasonal merchandise for the important Christmas holidays.

If higher cost domestic goods are substituted for delayed imports, our merchandise margin could be adversely impacted.

2 unchanged sentences

We are experiencing significantly higher international and domestic freight costs as a result of disruptions in the global supply chain.

This trend is likely to continue.

The combination of increased demand and limited availability of Trans-Pacific shipping capacity has caused spot market prices to increase substantially.

We are a large importer of merchandise from Asia and particularly sensitive to freight costs.

Freight costs for fiscal 2021 are now expected to be $1.50 to $1.60 per diluted share higher than fiscal year 2020.

Freight costs for fiscal 2021 are now expected to be $2.00 per diluted share higher than fiscal year 2020.

We are working to reduce our freight costs by using chartered vessels, evaluating and securing long-term contracts with our carriers for vessels dedicated in large part to our needs, and adding alternative sources of supply that do not rely on Trans-Pacific shipping.

• Labor Shortage.

We are experiencing a shortage of associates and applicants to fill staffing requirements at our distribution centers and stores due to the current labor shortage affecting retail businesses.

We are experiencing a shortage of associates and applicants to fill staffing requirements at our distribution centers and stores due to the current labor shortage affecting businesses.

This has adversely affected the operating efficiency of our distribution centers and our ability to transport merchandise from our distribution centers to our stores.

1 unchanged sentence

• Minimum Wage Increases.

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

In 2021, the minimum wage has increased in certain States and localities and we expect additional minimum wage increases by States and localities in 2022.

In addition, the federal minimum wage may increase depending on the outcome of legislation proposed in Congress.

Minimum wage increases in States and localities are expected to increase our costs by $45.0 to $50.0 million in 2021.

• Build-out and C onstruction Costs and Delays.

We have experienced higher commodity and other costs associated with the build-out of new stores and the renovation of existing stores.

In addition, we have experienced delays in new store openings due to inspection, permitting and contractor delays.

We anticipate these increased costs and delays may continue for the foreseeable future.

• COVID-19 Costs.

3 unchanged sentences

We expect shrink at cost as a percentage of net sales to be significantly lower in fiscal 2021 than fiscal 2020.

For additional information regarding the risks related to our business and operations, including risks relating to the implementation of our Dollar Tree and Family Dollar initiatives, see Item 1A.

Risk Factors in this Form 10-Q.

Results of Operations

3 unchanged sentences

13 Weeks Ended 39 Weeks Ended

July 31, August 1, Percentage

Change July 31, August 1, Percentage

October 30, October 31, Percentage

Change October 30, October 31, Percentage

(dollars in millions) 2021 2020 2021 2020

2 unchanged sentences

on a constant currency basis 1.6 % 5.1 % 0.4 % 6.5 %

The increase in net sales in the 13 weeks ended July 31, 2021 was a result of sales of $167.6 million at new stores, partially offset by comparable store net sales decreases in the Family Dollar and Dollar Tree segments.

Enterprise comparable store net sales decreased 1.2% on a constant currency basis in the 13 weeks ended July 31, 2021, as a result of an 0.8% decrease in customer traffic and a 0.4% decrease in average ticket.

Comparable store net sales decreased 1.1% when including the impact of Canadian currency fluctuations.

On a constant currency basis, comparable store net sales decreased 2.1% in the Family Dollar segment and decreased 0.2% in the Dollar Tree segment.

The increase in net sales in the 26 weeks ended July 31, 2021 was a result of a comparable store net sales increase in the Dollar Tree segment and sales of $337.4 million at new stores, partially offset by a comparable store net sales decrease in the Family Dollar segment.

Enterprise comparable store net sales decreased 0.2% on a constant currency basis in the 26 weeks ended July 31, 2021, as a result of a 4.4% decrease in customer traffic, partially offset by an increase in average ticket of 4.5%.

Comparable store net sales decreased 0.1% when including the impact of Canadian currency fluctuations.

On a constant currency basis, comparable store net sales decreased 2.5% in the Family Dollar segment and increased 2.2% in the Dollar Tree segment.

In the first half of 2020, the Family Dollar segment had a comparable store net sales increase of 13.6% as we saw an increase in demand for essential products in the early stages of the COVID-19 pandemic.

For the first half of 2020, the Dollar Tree segment had a comparable store net sales increase of 1.1%, as the higher average ticket was partially offset by lower traffic resulting from the COVID-19 pandemic which negatively affected Easter sales.

The increase in net sales in the 13 weeks ended October 30, 2021 was a result of sales of $177.5 million at new stores, and comparable store net sales increases in the Family Dollar and Dollar Tree segments.

Enterprise comparable store net sales increased 1.6% on a constant currency basis in the 13 weeks ended October 30, 2021, as a result of a 3.5% increase in average ticket, partially offset by a 1.8% decrease in customer traffic.

Comparable store net sales increased the same 1.6% when including the impact of Canadian currency fluctuations.

On a constant currency basis, comparable store net sales increased 2.7% in the Family Dollar segment and 0.6% in the Dollar Tree segment.

The increase in net sales in the 39 weeks ended October 30, 2021 was a result of sales of $514.9 million at new stores and a comparable store net sales increase in the Dollar Tree segment, partially offset by a comparable store net sales decrease in the Family Dollar segment.

Enterprise comparable store net sales increased 0.4% on a constant currency basis in the 39 weeks ended October 30, 2021, as a result of a 4.1% increase in average ticket, partially offset by a 3.6% decrease in customer traffic.

Comparable store net sales increased 0.5% when including the impact of Canadian currency fluctuations.

On a constant currency basis, comparable store net sales increased 1.7% in the Dollar Tree segment and decreased 0.8% in the Family Dollar segment.

In the same period last year, the Family Dollar segment had a comparable store net sales increase of 11.2% as we saw an increase in demand for essential products in the early stages of the COVID-19 pandemic.

The Dollar Tree segment had a comparable store net sales increase of 2.1% in the same period last year, as the higher average ticket was partially offset by lower traffic resulting from the COVID-19 pandemic which negatively affected Easter sales.

13 Weeks Ended 39 Weeks Ended

July 31, August 1, Percentage

Change July 31, August 1, Percentage

October 30, October 31, Percentage

Change October 30, October 31, Percentage

(dollars in millions) 2021 2020 2021 2020

1 unchanged sentence

Gross profit margin 27.5 % 31.2 % (3.7) % 29.1 % 30.1 % (1.0) %

The decrease in gross profit margin in the 13 weeks ended July 31, 2021 was a result of the net of the following:

• Merchandise cost, including freight, increased 170 basis points resulting primarily from higher freight costs on both segments and higher sales of lower margin consumable merchandise on the Family Dollar segment, partially offset by higher sales of higher margin discretionary merchandise on the Dollar Tree segment.

• Occupancy costs increased 25 basis points primarily due to the loss of leverage from the decrease in comparable store net sales for the quarter.

• Markdown costs decreased 10 basis points primarily due to the prior year including $9.8 million of uninsured markdown costs for stores affected by civil unrest.

• Distribution costs decreased 10 basis points resulting from the prior year quarter including COVID-19 premium pay of $2 per hour for all hourly associates, partially offset by higher distribution center payroll and depreciation costs in the Dollar Tree segment resulting from the two new distribution centers.

The decrease in gross profit margin in the 13 weeks ended October 30, 2021 was a result of the net of the following:

• Merchandise cost, including freight, increased 360 basis points resulting primarily from higher freight costs on both segments partially offset by higher sales of higher margin discretionary merchandise on the Dollar Tree segment.

• Distribution costs increased 15 basis points resulting from higher distribution center payroll costs, resulting primarily from hourly wage increases on both segments, and higher depreciation costs on the Dollar Tree segment resulting from the two new distribution centers, partially offset by lower COVID-19-related costs.

The 13 weeks ended October 30, 2021 and October 31, 2020 included COVID-19 costs of approximately $2.8 million and $10.9 million, respectively.

The prior year amount included a per hour premium for all hourly associates.

• Occupancy costs increased 10 basis points primarily due to the loss of leverage from the low comparable store net sales increase for the quarter and higher real estate tax expenses.

• Markdown costs increased 10 basis points primarily due to higher clearance markdowns on the Family Dollar segment and higher dated product markdowns on the Dollar Tree segment.

• Shrink costs decreased 30 basis points resulting from favorable inventory results in relation to accruals and decreases in the shrink accrual rates in both the Family Dollar and Dollar Tree segments in the current quarter.

The increase in gross profit margin in the 26 weeks ended July 31, 2021 was a result of the net of the following:

The decrease in gross profit margin in the 39 weeks ended October 30, 2021 was a result of the net of the following:

• Merchandise cost, including freight, increased 140 basis points resulting from higher freight costs on both segments, partially offset by higher sales of higher margin discretionary merchandise, including higher Easter sales in both segments and improved initial mark-on in both segments.

• Occupancy costs increased 10 basis points primarily due to the loss of leverage from the comparable store net sales decrease on the Family Dollar segment.

• Distribution costs were flat as a percentage of net sales compared to the prior year resulting from COVID-19 expenses in the prior year of $28.7 million, including COVID-19 premium pay of $2 per hour for all hourly associates for hours worked beginning March 8, 2020, offset by hourly wage increases at the distribution centers and higher depreciation costs in the Dollar Tree segment resulting from the two new distribution centers.

COVID-19-related costs for the 39 weeks ended October 30, 2021 were $6.1 million.

• Markdown costs decreased 5 basis points primarily due to lower seasonal markdowns in the Dollar Tree segment resulting from the improved sell-through of Easter merchandise in the current year and $10.4 million of uninsured markdown costs for stores affected by civil unrest in the prior year, partially offset by higher clearance markdowns on the Family Dollar segment.

• Shrink costs decreased 45 basis points resulting from favorable inventory results in relation to accruals and decreases in the shrink accrual rates in both the Family Dollar and Dollar Tree segments in the current year.

• Markdown costs decreased 15 basis points primarily due to lower seasonal markdowns in the Dollar Tree segment resulting from the improved sell-through of Easter merchandise in the current year and $9.8 million of uninsured markdown costs for stores affected by civil unrest in the prior year.

• Distribution costs decreased 10 basis points resulting from the prior year including COVID-19 premium pay of $2 per hour for all hourly associates for hours worked beginning March 8, 2020, partially offset by higher distribution center payroll and depreciation costs in the Dollar Tree segment resulting from the two new distribution centers.

• Occupancy costs increased 10 basis points primarily due to the loss of leverage from the decrease in comparable store net sales.

• Merchandise cost, including freight, increased 30 basis points resulting from higher freight costs on both segments, partially offset by higher sales of higher margin discretionary merchandise, including higher Easter sales in both segments and improved initial mark-on for the Family Dollar segment.

Selling, General and Administrative Expenses

13 Weeks Ended 39 Weeks Ended

July 31, August 1, Percentage

Change July 31, August 1, Percentage

October 30, October 31, Percentage

Change October 30, October 31, Percentage

(dollars in millions) 2021 2020 2021 2020

3 unchanged sentences

expense rate 22.7 % 23.7 % (1.0) % 22.7 % 23.7 % (1.0) %

The decrease in the selling, general and administrative expense rate in the 13 weeks ended July 31, 2021 was the result of the net of the following:

• Payroll expenses decreased 145 basis points primarily due to lower COVID-19-related store payroll costs and lower incentive and stock compensation costs, partially offset by loss of leverage resulting from the comparable store net sales decrease in the quarter and higher health insurance costs.

The 13 weeks ended August 1, 2020 included $114.6 million, or 185 basis points, of COVID-19-related payroll expenses including store payroll costs for a $2 per hour premium paid to all store hourly associates for all hours worked during the quarter, 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.

• Store facility costs decreased 15 basis points primarily due to lower repairs and maintenance costs.

The prior year quarter included $3.9 million, primarily for uninsured repairs, related to stores damaged in civil unrest.

• Other selling, general and administrative expenses increased 5 basis points resulting primarily from higher advertising and travel costs and increased debit and credit fees, partially offset by a decrease in insurance costs related to the favorable development of general liability claims and higher costs in the prior year quarter for masks, gloves and cleaning supplies due to the COVID-19 pandemic and expenses related to stores damaged in civil unrest.

The decrease in the selling, general and administrative expense rate in the 26 weeks ended July 31, 2021 was primarily the result of a 100 basis point decrease in payroll expenses primarily due to lower COVID-19-related store payroll costs and lower stock and incentive compensation costs, partially offset by loss of leverage resulting from the comparable store net sales decrease and increased health insurance costs.

The first half of 2020 included $172.1 million, or 135 basis points, of COVID-19-related payroll expenses including store payroll costs for 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.

The decrease in the selling, general and administrative expense rate in the 13 weeks ended October 30, 2021 was the result of the net of the following:

• Payroll expenses decreased 80 basis points primarily due to lower incentive compensation expenses and lower COVID-19-related store payroll costs, partially offset by minimum wage increases in the current year.

The 13 weeks ended October 30, 2021 and October 31, 2020 included $6.8 million and $28.9 million, respectively, of COVID-19-related payroll costs.

The COVID-19 expenses in the current quarter were primarily for quarantine and sick pay as well as the related payroll taxes.

In the prior year quarter, COVID-19-related payroll expenses included store payroll costs for 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.

• Store facility costs decreased 15 basis points primarily due to lower repairs and maintenance costs and utility costs.

• Other selling, general and administrative expenses were flat as a percentage of total revenue.

Travel and advertising costs were higher in the current quarter as the prior year levels were unusually low as a result of the COVID-19 pandemic.

The current quarter also includes the benefit associated with the settlement of a contractual dispute.

The decrease in the selling, general and administrative expense rate in the 39 weeks ended October 30, 2021 was primarily the result of a 95 basis point decrease in payroll expenses primarily due to lower COVID-19-related store payroll costs and lower stock and incentive compensation expenses, partially offset by minimum wage increases and higher health insurance costs.

The 39 weeks ended October 30, 2021 and October 31, 2020 included $10.2 million and $201.0 million, respectively, of COVID-19-related payroll costs.

The COVID-19 expenses in 2021 were primarily for quarantine and sick pay as well as the related payroll taxes.

The prior year expenses were for store payroll costs for 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.

Operating Income

13 Weeks Ended 39 Weeks Ended

July 31, August 1, Percentage

Change July 31, August 1, Percentage

October 30, October 31, Percentage

Change October 30, October 31, Percentage

(dollars in millions) 2021 2020 2021 2020

1 unchanged sentence

Operating income margin 4.8 % 7.5 % (2.7) % 6.4 % 6.4 % — %

Operating income margin increased to 6.3% for the 13 weeks ended July 31, 2021 compared to 6.0% for the same period last year resulting from the decrease in the selling, general and administrative expense rate, partially offset by the decrease in gross profit margin as described above.

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

Operating income margin increased to 7.2% for the 26 weeks ended July 31, 2021 compared to 5.9% for the same period last year resulting from the decrease in the selling, general and administrative expense rate, partially offset by the decrease in gross profit margin as described above.

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

Operating income margin decreased to 4.8% for the 13 weeks ended October 30, 2021 compared to 7.5% for the same period last year resulting from the decrease in gross profit margin, partially offset by the decrease in the selling, general and administrative expense rate, as described above.

Operating income in the 13 weeks ended October 30, 2021 and October 31, 2020 included $11.6 million and $46.3 million, respectively, of COVID-19-related expenses.

Operating income margin was 6.4% for the 39 weeks ended October 30, 2021 and October 31, 2020.

In the current year, the decrease in gross profit margin was offset by the decrease in the selling, general and administrative expense rate, as described above.

Operating income in the 39 weeks ended October 30, 2021 included $22.1 million of COVID-19-related expenses.

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

Interest Expense, Net

13 Weeks Ended 39 Weeks Ended

July 31, August 1, Percentage

Change July 31, August 1, Percentage

October 30, October 31, Percentage

Change October 30, October 31, Percentage

(dollars in millions) 2021 2020 2021 2020

Interest expense, net $ 33.4 $ 38.1 (12.3) % $ 99.4 $ 113.1 (12.1) %

Interest expense, net decreased $1.8 million in the 13 weeks ended July 31, 2021 compared to the same period last year, resulting from lower average debt outstanding in the current year quarter.

Interest expense, net decreased $9.0 million in the 26 weeks ended July 31, 2021 compared to the same period last year, resulting from lower average debt outstanding in the current year.

Interest expense, net decreased $4.7 million and $13.7 million in the 13 weeks and 39 weeks ended October 30, 2021, respectively, compared to the same periods last year, resulting from lower average debt outstanding in the current year.

Provision for Income Taxes

13 Weeks Ended 39 Weeks Ended

July 31, August 1, Percentage

Change July 31, August 1, Percentage

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Change October 30, October 31, Percentage

(dollars in millions) 2021 2020 2021 2020

1 unchanged sentence

Effective tax rate 21.7 % 22.8 % (1.1) % 22.9 % 23.2 % (0.3) %

The effective tax rate for the 13 weeks ended July 31, 2021 was 23.5% compared to 23.1% resulting primarily from higher state tax rates and lower Work Opportunity Tax Credits as a percentage of pre-tax income in the current year quarter.

The effective tax rate for the 26 weeks ended July 31, 2021 was 23.3% compared to 23.5% for the same period last year resulting from additional tax deductions in the current year related to restricted stock vesting while last year the restricted stock vesting resulted in an increase in tax expense.

This benefit to the tax rate was partially offset by higher state tax rates and lower Work Opportunity Tax Credits as a percentage of pre-tax income in the current year.

The effective tax rate for the 13 weeks ended October 30, 2021 was 21.7% compared to 22.8% resulting primarily from higher Work Opportunity Tax Credits as a percentage of pre-tax income in the current year quarter.

The effective tax rate for the 39 weeks ended October 30, 2021 was 22.9% compared to 23.2% for the same period last year resulting from additional tax deductions in the current year related to restricted stock vesting while last year the restricted stock vesting resulted in an increase in tax expense.

This benefit was partially offset by higher state tax rates in the current year.

Segment Information

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13 Weeks Ended 39 Weeks Ended

July 31, August 1, Percentage

Change July 31, August 1, Percentage

October 30, October 31, Percentage

Change October 30, October 31, Percentage

(dollars in millions) 2021 2020 2021 2020

3 unchanged sentences

Operating income $ 290.5 $ 417.9 (30.5) % $ 1,019.2 $ 1,006.5 1.3 %

Operation income margin 10.1 % 9.7 % 0.4 % 11.1 % 9.4 % 1.7 %

Net sales for the Dollar Tree segment increased $87.4 million, or 2.8%, for the 13 weeks ended July 31, 2021 compared to the same period last year.

The increase was due to sales from new stores of $105.8 million, partially offset by a 0.2% decrease in comparable store net sales.

Average ticket decreased 1.3% and customer traffic increased 1.1%.

Net sales for the Dollar Tree segment increased $331.2 million, or 5.3%, for the 26 weeks ended July 31, 2021 compared to the same period last year.

The increase was due to a 2.2% increase in comparable store net sales and sales from new stores of $218.0 million.

Operating income margin 8.5 % 12.7 % (4.2) % 10.2 % 10.5 % (0.3) %

Net sales for the Dollar Tree segment increased $114.2 million, or 3.5%, for the 13 weeks ended October 30, 2021 compared to the same period last year.

The increase was due to sales from new stores of $108.5 million and a 0.6% increase in comparable store net sales.

Average ticket increased 1.8% and customer traffic decreased 1.1%.

Net sales for the Dollar Tree segment increased $445.4 million, or 4.7%, for the 39 weeks ended October 30, 2021 compared to the same period last year.

The increase was due to sales from new stores of $326.5 million and a 1.7% increase in comparable store net sales.

Average ticket increased 3.1% and customer traffic declined 1.4%.

Gross profit margin for the Dollar Tree segment decreased to 32.4% for the 13 weeks ended July 31, 2021 compared to 33.7% for the same period last year as a result of the net of the following:

• Merchandise cost, including freight, increased 175 basis points primarily due to increased freight costs and lower initial mark-on, partially offset by increased sales of higher margin discretionary merchandise.

• Occupancy costs increased 10 basis points as a result of the loss of leverage due to the comparable store net sales decrease in the quarter.

Gross profit margin for the Dollar Tree segment decreased to 30.2% for the 13 weeks ended October 30, 2021 compared to 34.9% for the same period last year as a result of the net of the following:

• Merchandise cost, including freight, increased 475 basis points primarily due to higher freight costs and lower initial mark-on, partially offset by increased sales of higher margin discretionary merchandise.

• Occupancy costs increased 10 basis points as a result of the loss of leverage due to the low comparable store net sales increase in the quarter and higher real estate tax expenses.

• Distribution costs increased 10 basis points resulting primarily from higher depreciation costs related to two new distribution centers and higher hourly wages, partially offset by lower COVID-19-related expenses.

Total distribution-related COVID-19 expenses were $1.9 million and $6.6 million for the 13 weeks ended October 30, 2021 and October 31, 2020, respectively.

COVID-19-related expenses in the prior year included a per hour premium paid to all distribution center hourly associates for all hours worked during the quarter.

• Markdown costs increased 5 basis points resulting from higher dated product markdowns.

• Shrink costs decreased 25 basis points resulting from favorable inventory results in relation to accruals in the current quarter and a decrease in the shrink accrual rate.

• Distribution costs decreased 5 basis points as a result of a $2 per hour premium paid to all hourly distribution center associates for all hours worked in the prior year quarter, partially offset by increased payroll costs and higher depreciation costs in the current quarter resulting from two new distribution centers.

Total distribution center COVID-19-related expenses were approximately $6.7 million for the 13 weeks ended August 1, 2020.

Gross profit margin for the Dollar Tree segment increased to 33.0% for the 26 weeks ended July 31, 2021 compared to 32.8% for the same period last year as a result of the net of the following:

• Shrink costs decreased 50 basis points resulting from favorable inventory results in relation to accruals in the current year and a decrease in the shrink accrual rate.

• Markdown costs decreased 15 basis points resulting from lower seasonal markdowns due to the higher Easter sell-through in the current year.

• Occupancy costs decreased 5 basis points as a result of leverage due to the comparable store net sales increase in the current year.

• Distribution costs were flat as a percentage of net sales compared to the same period last year as increased payroll and depreciation costs related to two new distribution centers were offset by the $2 per hour premium paid in the prior year period to all distribution center hourly associates for all hours worked from March 8, 2020.

Total distribution center COVID-19-related expenses were approximately $10.3 million for the 26 weeks ended August 1, 2020.

• Merchandise cost, including freight, increased 45 basis points primarily due to higher freight costs, partially offset by increased sales of higher margin discretionary merchandise, including a higher Easter sell-through.

Gross profit margin for the Dollar Tree segment decreased to 32.1% for the 39 weeks ended October 30, 2021 compared to 33.6% for the same period last year as a result of the net of the following:

• Merchandise cost, including freight, increased 195 basis points due primarily to higher freight costs and lower initial mark-on, partially offset by higher sales of higher margin discretionary merchandise, including a higher Easter sell-through.

Easter sales were significantly lower last year as a result of the COVID-19 pandemic.

Operating income margin for the Dollar Tree segment increased to 10.1% for the 13 weeks ended July 31, 2021 from 9.7% for the same period last year.

The increase in operating income margin in the 13 weeks ended July 31, 2021 was the result of a lower selling, general and administrative expense rate and the gross margin decrease noted above.

The selling, general and administrative expense rate decreased to 22.3% in the 13 weeks ended July 31, 2021 compared to 24.0% for the same period last year as a result of the following:

• Payroll expenses decreased 155 basis points primarily due to lower COVID-19-related store payroll costs and lower incentive compensation expenses, partially offset by higher health insurance expenses and the loss of leverage from the comparable store net sales decrease.

The 13 weeks ended August 1, 2020 included $66.0 million of COVID-19-related payroll expenses including store payroll costs for 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.

• Other selling, general and administrative expenses decreased 20 basis points resulting primarily from a decrease in insurance costs related to the favorable development of general liability claims, partially offset by increased debit and credit fees resulting from higher debit and credit card penetration.

The prior year included higher costs for masks, gloves and cleaning supplies due to the COVID-19 pandemic.

• Store facility costs decreased 5 basis points due to lower repairs and maintenance costs.

Operating income in the 13 weeks ended August 1, 2020 included $76.6 million of COVID-19-related expenses.

Operating income margin for the Dollar Tree segment increased to 11.1% for the 26 weeks ended July 31, 2021 from 9.4% for the same period last year.

The increase in operating income margin in the 26 weeks ended July 31, 2021 was the result of the gross margin increase noted above, and a decrease in the selling, general and administrative expense rate.

The selling, general and administrative

expense rate decreased to 21.9% in the 26 weeks ended July 31, 2021 compared to 23.4% for the same period last year as a result of the following:

• Payroll expenses decreased 130 basis points primarily due to lower COVID-19-related store payroll costs, lower incentive compensation expenses and leverage from the comparable store net sales increase, partially offset by higher health care costs.

The first half of 2020 included $99.7 million of COVID-19-related payroll expenses including store payroll costs for 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.

• Other selling, general and administrative expenses decreased 10 basis points resulting primarily from lower store supplies expense and a decrease in insurance costs related to the favorable development of general liability claims, partially offset by increased debit and credit fees resulting from higher debit and credit card penetration.

• Distribution costs increased 5 basis points resulting primarily from higher depreciation costs related to two new distribution centers and higher hourly wages in the current year, partially offset by lower COVID-19-related expenses.

Total distribution center COVID-19-related expenses were approximately $4.1 million and $16.9 million for the 39 weeks ended October 30, 2021 and October 31, 2020, respectively.

COVID-19-related expenses in the prior year included a per hour premium paid to all distribution center hourly associates for all hours worked from March 8, 2020.

• Markdown costs decreased 5 basis points resulting from lower seasonal markdowns due to the higher Easter sell-through in the current year, partially offset by higher dated product markdowns.

• Shrink costs decreased 40 basis points resulting from favorable inventory results in relation to accruals in the current year and a decrease in the shrink accrual rate.

Operating income margin for the Dollar Tree segment decreased to 8.5% for the 13 weeks ended October 30, 2021 from 12.7% for the same period last year.

The decrease in operating income margin in the 13 weeks ended October 30, 2021 was the result of the gross profit margin decrease noted above, partially offset by a lower selling, general and administrative expense rate.

The selling, general and administrative expense rate decreased to 21.7% in the 13 weeks ended October 30, 2021 compared to 22.2% for the same period last year as a result of the following:

• Payroll expenses decreased 30 basis points primarily due to lower COVID-19-related store payroll costs and lower incentive compensation expenses, partially offset by minimum wage increases and higher health insurance expenses.

The 13 weeks ended October 30, 2021 and October 31, 2020 included $3.3 million and $17.3 million, respectively, of COVID-19-related payroll expenses.

The amounts in the current quarter were primarily for quarantine and sick pay as well as the related payroll taxes.

• Other selling, general and administrative expenses decreased 25 basis points due to the current year including the benefit associated with the settlement of a contractual dispute and the realization of certain tax credits.

The prior year also included higher costs for masks, gloves and cleaning supplies due to the COVID-19 pandemic.

Operating income in the 13 weeks ended October 30, 2021 and October 31, 2020 included $6.2 million and $28.6 million, respectively, of COVID-19-related expenses.

Operating income margin for the Dollar Tree segment decreased to 10.2% for the 39 weeks ended October 30, 2021 from 10.5% for the same period last year.

The decrease in operating income margin in the 39 weeks ended October 30, 2021 was the result of the gross profit margin decrease noted above and a decrease in the selling, general and administrative expense rate.

The selling, general and administrative expense rate decreased to 21.9% in the 39 weeks ended October 30, 2021 compared to 23.1% for the same period last year as a result of the following:

• Payroll expenses decreased 95 basis points primarily due to lower COVID-19-related store payroll costs and lower incentive compensation expenses, partially offset by minimum wage increases and higher health insurance costs.

The 39 weeks ended October 30, 2021 and October 31, 2020 included $5.0 million and $117.0 million, respectively, of COVID-19-related payroll expenses.

COVID-19 expenses in the current year were primarily for quarantine and sick pay as well as the related payroll taxes.

In the prior year, COVID-19-related payroll expenses included store payroll costs for a $1 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, quarantine pay and sick pay as well as the related payroll taxes.

• Other selling, general and administrative expenses decreased 15 basis points due to the current year including the benefit associated with the settlement of a contractual dispute, the realization of certain tax credits and lower store supplies expense, partially offset by higher debit and credit fees resulting from higher debit and credit card penetration.

The prior year included costs for the installation of plexiglass sneeze guards at all registers in our stores and higher costs for masks, gloves and cleaning supplies due to the COVID-19 pandemic.

• Depreciation and amortization decreased 5 basis points as a result of leverage from the comparable store net sales increase.

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

Operating income in the 39 weeks ended October 30, 2021 included $12.4 million of COVID-19-related expenses.

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

Family Dollar

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13 Weeks Ended 39 Weeks Ended

July 31, August 1, Percentage

Change July 31, August 1, Percentage

October 30, October 31, Percentage

Change October 30, October 31, Percentage

(dollars in millions) 2021 2020 2021 2020

3 unchanged sentences

Operating income $ 88.6 $ 131.4 (32.6) % 456.3 472.0 (3.3) %

Operation income margin 5.1 % 5.3 % (0.2) % 5.9 % 5.4 % 0.5 %

Net sales for the Family Dollar segment decreased $24.8 million, or 0.8%, for the 13 weeks ended July 31, 2021 compared to the same period last year.

The decrease was due to a comparable store net sales decrease of 2.1%, offset partially by $61.8 million of new store sales.

For the 13 weeks ended July 31, 2021, average ticket increased 1.4% and customer traffic declined 3.5%.

Net sales for the Family Dollar segment decreased $78.6 million, or 1.2%, for the 26 weeks ended July 31, 2021 compared to the same period last year.

The decrease was due to a comparable store net sales decrease of 2.5%, offset partially by $119.4 million of new store sales.

For the 26 weeks ended July 31, 2021, average ticket increased 6.3% and customer traffic declined 8.2%.

Gross profit margin for the Family Dollar segment decreased to 26.1% for the 13 weeks ended July 31, 2021 compared to 27.2% for the same period last year.

Operating income margin 3.0 % 4.6 % (1.6) % 4.9 % 5.1 % (0.2) %

Net sales for the Family Dollar segment increased $124.5 million, or 4.3%, for the 13 weeks ended October 30, 2021 compared to the same period last year.

The increase was due to a comparable store net sales increase of 2.7% and $69.0 million of new store sales.

For the 13 weeks ended October 30, 2021, average ticket increased 5.8% and customer traffic declined 3.0%.

Net sales for the Family Dollar segment increased $45.9 million, or 0.5%, for the 39 weeks ended October 30, 2021 compared to the same period last year.

The increase was due to $188.4 million of new store sales, offset partially by a comparable store net sales decrease of 0.8%.

For the 39 weeks ended October 30, 2021, average ticket increased 6.1% and customer traffic declined 6.5%.

Gross profit margin for the Family Dollar segment decreased to 24.4% for the 13 weeks ended October 30, 2021 compared to 26.8% for the same period last year.

The decrease is due to the net of the following:

• Merchandise cost, including freight, increased 175 basis points primarily due to higher freight costs and increased sales of lower margin consumable merchandise.

• Occupancy costs increased 35 basis points as a result of loss of leverage from the comparable store net sales decrease.

• Distribution costs decreased 20 basis points primarily due to lower COVID-19-related distribution center payroll costs.

The 13 weeks ended August 1, 2020 included $4.7 million of incremental distribution center payroll costs, including a $2 per hour premium for all distribution center hourly associates for all hours worked during the quarter.

• Markdown costs decreased 25 basis points primarily due to $7.0 million of uninsured markdowns in the prior year quarter for stores affected by civil unrest.

• Merchandise cost, including freight, increased 220 basis points primarily due to higher freight costs.

• Distribution costs increased 20 basis points primarily due to higher hourly wages, partially offset by lower COVID-19-related expenses.

Total distribution-related COVID-19 expenses were $0.9 million and $4.3 million for the 13 weeks ended October 30, 2021 and October 31, 2020, respectively.

The prior year COVID-19-related expenses included a per hour premium for all distribution center hourly associates for all hours worked during the quarter.

• Markdown costs increased 20 basis points primarily due to higher clearance markdowns.

• Occupancy costs increased 5 basis points primarily due to higher real estate tax expenses.

• Shrink expense decreased 30 basis points resulting from favorable physical inventory results in relation to accruals in the current year quarter and a decrease in the shrink accrual rate.

Gross profit margin for the Family Dollar segment increased to 26.5% for the 26 weeks ended July 31, 2021 compared to 26.3% for the same period last year.

The increase is due to the net of the following:

• Shrink expense decreased 55 basis points resulting from favorable physical inventory results in relation to accruals in the current year and a decrease in the shrink accrual rate.

• Distribution costs decreased 20 basis points primarily due to lower COVID-19-related distribution center payroll costs.

The 26 weeks ended August 1, 2020 included $7.5 million of incremental distribution center payroll costs, including a $2 per hour premium for all distribution center hourly associates for all hours worked beginning March 8, 2020.

• Markdown costs decreased 10 basis points primarily due to $7.0 million of uninsured markdowns in the prior year for stores affected by civil unrest.

• Occupancy costs increased 25 basis points as a result of loss of leverage from the comparable store net sales decrease.

• Merchandise cost, including freight, increased 45 basis points primarily due to higher freight costs, offset partially by higher initial mark-on and increased sales of higher margin discretionary merchandise.

Operating income margin for the Family Dollar segment decreased to 5.1% for the 13 weeks ended July 31, 2021 from 5.3% for the same period last year resulting from the gross margin decrease noted above, offset partially by a decrease in the selling, general and administrative expense rate.

The selling, general and administrative expense rate was 21.0% in the 13 weeks ended July 31, 2021 compared to 21.9% for the same period last year.

Gross profit margin for the Family Dollar segment decreased to 25.8% for the 39 weeks ended October 30, 2021 compared to 26.4% for the same period last year.

The decrease is due to the net of the following:

• Merchandise cost, including freight, increased 100 basis points primarily due to higher freight costs, partially offset by higher initial mark-on.

• Occupancy costs increased 20 basis points as a result of the loss of leverage from the comparable store net sales decrease and higher real estate tax expenses.

• Markdown costs were unchanged as a percentage of net sales compared to the prior year.

Current year results included higher clearance markdowns while the prior year included $7.5 million of uninsured markdowns for stores affected by civil unrest.

• Distribution costs decreased 5 basis points primarily due to lower COVID-19-related costs partially offset by higher hourly wages.

Total distribution center COVID-19-related expenses were $2.0 million and $11.8 million for the 39 weeks ended October 30, 2021 and October 31, 2020, respectively.

COVID-19-related expenses in the prior year included a per hour premium for all distribution center hourly associates for all hours worked beginning March 8, 2020.

• Shrink expense decreased 50 basis points resulting from favorable physical inventory results in relation to accruals and a decrease in the shrink accrual rate.

Operating income margin for the Family Dollar segment decreased to 3.0% for the 13 weeks ended October 30, 2021 from 4.6% for the same period last year resulting from the gross profit margin decrease noted above, offset partially by a decrease in the selling, general and administrative expense rate.

The selling, general and administrative expense rate was 21.4% in the 13 weeks ended October 30, 2021 compared to 22.2% for the same period last year.

The current quarter decrease in the selling, general and administrative expense rate was due to the net of the following:

• Payroll expenses decreased 95 basis points primarily due to lower COVID-19-related store payroll costs and lower incentive compensation, partially offset by loss of leverage from the comparable store net sales decrease and higher health care costs.

The 13 weeks ended August 1, 2020 included $48.2 million, or 155 basis points, of COVID-19-related payroll expenses, 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.

• Store facility costs decreased 30 basis points primarily due to lower repairs and maintenance expenses.

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

• Depreciation and amortization expense increased 10 basis points primarily due to loss of leverage from the comparable store net sales decrease.

• Other selling, general and administrative expenses increased 35 basis points primarily due to increases in advertising and travel expenses and loss of leverage from the comparable store net sales decrease.

Promotional advertising was lower in the prior year quarter due to the COVID-19 pandemic.

Operating income in the 13 weeks ended August 1, 2020 included $57.1 million of 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 5.9% for the 26 weeks ended July 31, 2021 from 5.4% for the same period last year resulting from the gross margin increase noted above and a decrease in the selling, general and administrative expense rate.

The selling, general and administrative expense rate was 20.6% in the 26 weeks ended July 31, 2021 compared to 20.9% for the same period last year.

• Payroll expenses decreased 65 basis points primarily due to lower COVID-19-related store payroll costs and lower incentive compensation expenses, partially offset by minimum wage increases.

The 13 weeks ended October 30, 2021 and October 31, 2020 included $3.5 million and $11.4 million, respectively, of COVID-19-related payroll expenses.

The amounts in the current quarter were primarily for quarantine and sick pay as well as the related payroll taxes.

The prior year quarter included a $1 per hour premium paid to all store hourly associates for all hours worked through September 26, 2020, quarantine pay and sick pay as well as the related payroll taxes.

• Store facility costs decreased 30 basis points primarily due to lower repairs and maintenance expenses and lower telecommunication expenses.

• Depreciation and amortization expense increased 5 basis points primarily due to expenditures associated with the store optimization program.

• Other selling, general and administrative expenses increased 20 basis points primarily due to increases in advertising and travel expenses, an increase in insurance costs related to general liability claims and increases in tax reserves.

Promotional advertising and travel were lower in the prior year quarter due to the COVID-19 pandemic.

Operating income in the 13 weeks ended October 30, 2021 and October 31, 2020 included $5.4 million and $17.4 million, respectively, of COVID-19-related expenses.

Operating income margin for the Family Dollar segment decreased to 4.9% for the 39 weeks ended October 30, 2021 from 5.1% for the same period last year resulting from the gross profit margin decrease noted above, offset partially by a decrease in the selling, general and administrative expense rate.

The selling, general and administrative expense rate was 20.9% in the 39 weeks ended October 30, 2021 compared to 21.3% for the same period last year.

The current year decrease in the selling, general and administrative expense rate was due to the net of the following:

• Payroll expenses decreased 60 basis points primarily due to lower COVID-19-related store payroll costs and lower incentive compensation, partially offset by loss of leverage from the comparable store net sales decrease.

The 26 weeks ended August 1, 2020 included $72.0 million, or 115 basis points, of COVID-19-related payroll expenses, including a $2 per hour premium for all store hourly associates for hours worked beginning 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.

• Depreciation and amortization expense increased 5 basis points primarily due to loss of leverage from the comparable store net sales decrease.

• Other selling, general and administrative expenses increased 25 basis points primarily due to an increase in advertising expenses and loss of leverage from the comparable store net sales decrease.

• Payroll expenses decreased 60 basis points primarily due to lower COVID-19-related store payroll costs and lower incentive compensation expenses, partially offset by minimum wage increases and the loss of leverage from the comparable store net sales decrease.

The 39 weeks ended October 30, 2021 and October 31, 2020 included $5.1 million and $83.4 million, respectively, of COVID-19-related payroll expenses.

COVID-19 expenses in the current year were primarily for quarantine and sick pay as well as the related payroll taxes.

The prior year included 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.

• Store facility costs decreased 10 basis points primarily due to lower repairs and maintenance expenses and lower telecommunication expenses.

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 increased 10 basis points primarily due to the loss of leverage from the comparable store net sales decrease and expenditures associated with the store optimization program.

• Other selling, general and administrative expenses increased 25 basis points primarily due to an increase in advertising expenses, increases in tax reserves and the loss of leverage from the comparable store net sales decrease.

Promotional advertising was lower in the prior year due to the COVID-19 pandemic.

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

Operating income in the 39 weeks ended October 30, 2021 included $9.5 million of COVID-19-related expenses.

The 39 weeks ended October 31, 2020 included $104.9 million of COVID-19-related expenses and $12.4 million of uninsured costs related to civil unrest.

Liquidity and Capital Resources

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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 July 31, 2021 and August 1, 2020:

The following table compares cash-flow related information for the 39 weeks ended October 30, 2021 and October 31, 2020:

39 Weeks Ended

July 31, August 1,

October 30, October 31,

(in millions) 2021 2020

3 unchanged sentences

Financing activities (981.6) (446.7)

Net cash provided by operating activities decreased $700.9 million primarily due to increases in merchandise inventories and decreases in current liabilities and other liabilities.

Net cash used in investing activities decreased $19.6 million primarily due to lower capital expenditures in the current year.

For the 26 weeks ended July 31, 2021, cash used in financing activities was $980.8 million compared to cash provided by financing activities of $245.4 million for the 26 weeks ended August 1, 2020.

The cash used in financing activities in the current year is primarily due to $947.5 million of cash paid for stock repurchases.

In the prior year, 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, which was partially offset by the final $250.0 million payment on the Senior Floating Rate Notes and a $250.0 million repayment of the Revolving Credit Facility draw.

At July 31, 2021, our long-term borrowings were $3.25 billion and we had $1.15 billion available under our Revolving Credit Facility.

We also have $425.0 million in Letter of Credit Reimbursement and Security Agreements with various financial institutions, under which $393.3 million was committed to letters of credit issued for routine purchases of imported merchandise as of July 31, 2021.

We repurchased 9,156,898 shares of common stock on the open market for approximately $950.0 million during the 26 weeks ended July 31, 2021.

Approximately $2.5 million in share repurchases had not settled as of July 31, 2021 and this amount was accrued in the accompanying unaudited condensed consolidated balance sheet as of July 31, 2021.

We did not repurchase any shares of common stock in the 26 weeks ended August 1, 2020.

As of July 31, 2021, we have $1.45 billion remaining under Board repurchase authorization.

Net cash provided by operating activities decreased $715.0 million primarily due to higher inventory levels in the current year.

Net cash used in investing activities increased $38.8 million primarily due to higher capital expenditures in the current year.

Net cash used in financing activities increased $534.9 million primarily due to $950.0 million of cash paid for stock repurchases in the current year compared to nearly $200.0 million in the prior year, partially offset by the final $250.0 million payment on the Senior Floating Rate Notes in the prior year.

At October 30, 2021, our long-term borrowings were $3.25 billion and we had $1.18 billion available under our Revolving Credit Facility.

We also have $425.0 million in Letter of Credit Reimbursement and Security Agreements with various financial institutions, under which $311.5 million was committed to letters of credit issued for routine purchases of imported merchandise as of October 30, 2021.

We repurchased 9,156,898 shares of common stock on the open market for $950.0 million during the 39 weeks ended October 30, 2021.

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.

During the 13 weeks ended October 30, 2021, the Board increased our share repurchase authorization by $1.05 billion to an aggregate amount of $2.5 billion, including $1.45 billion available for repurchases under the Board’s previous repurchase authorization approved on March 2, 2021.

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