What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-05-26 compared with 2021-11-23 · 163 added, 263 removed, 144 unchanged (75% of the section changed)

7 unchanged sentences

• The impact of delays in receiving imported merchandise from Asia on our product availability, product mix, sales and merchandise margin;

• Our expectations regarding higher oceanic shipping and domestic freight and fuel costs, and our plans to manage those cost increases;

• 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 shortages at our distribution centers and stores;

• Our expectations regarding higher oceanic shipping and domestic freight and fuel costs, and our plans to manage these cost increases;

• 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;

• 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 proposals to raise federal corporate tax rates;

• 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;

• The potential effect of general business or economic conditions on our business, including the effects of inflation, consumer spending levels, and labor shortages and costs in our markets;

• The uncertainty of the impact of the COVID-19 pandemic and public health measures on our business, results of operations, customers and suppliers, including uncertainties surrounding shipping delays and other disruptions in our supply chain or sources of supply;

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

• The expected impact of labor disagreements and potential work disruptions or strikes, including at ports located in California, Oregon, and Washington, on shipping delays and the availability and cost of merchandise;

• The expected and possible outcome, costs, and impact of pending or potential litigation, arbitrations, other legal proceedings or governmental investigations (including U.S.

Food and Drug Administration matters);

• Our plans to renovate existing Family Dollar stores and build new stores in the H2 store format, 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, including the impact on our gross margins;

• Our plans and expectations relating to new store openings and new store concepts such as Dollar Tree Plus and our Combination Store format;

• Our plans and expectations regarding future strategic investments and the uncertainty with respect to the amount, timing and impact of those investments on our business and results of operations;

• 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).

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

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The following risks could have a material adverse impact on our sales, costs, profitability, financial performance or implementation of strategic initiatives:

• We are experiencing disruptions in our supply chain, including shipping delays, port closings and congestion, that have had and could have an adverse impact on our product availability, product mix, sales and merchandise margin.

• 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 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 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 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.

• Our profitability is vulnerable to increases in oceanic shipping costs, domestic freight and fuel costs, wage and benefit costs and other operating costs.

• We are experiencing higher costs and disruptions in our distribution network, which have had and could have an adverse impact on our sales, margins and profitability.

• We may stop selling or recall certain products for safety-related or other issues.

• Our business and results of operations could be materially harmed if we experience a decline in consumer confidence and spending as a result of consumer concerns about the quality and safety of our products.

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

• If the COVID-19 pandemic and associated disruptions worsen or continue longer than expected, there could be a material adverse impact on our business and results of operations.

• Risks associated with our domestic and foreign suppliers could adversely affect our financial performance.

• Our supply chain may be disrupted by changes in United States trade policy with China.

• Our growth is dependent on our ability to increase sales in existing stores and to expand our square footage profitably.

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

• Pressure from competitors may reduce our sales and profits.

• Our business could be adversely affected if we fail to attract and retain qualified associates and key personnel.

• We could incur losses due to impairment of long-lived assets, goodwill and intangible assets.

• We rely on computer and technology systems in our operations, and any material failure, inadequacy, interruption or security failure of those systems including because of a cyber-attack could harm our ability to effectively operate and grow our business and could adversely affect our financial results.

• The potential unauthorized access to customer information may violate privacy laws and could damage our business reputation, subject us to negative publicity, litigation and costs, and adversely affect our results of operations or business.

• Litigation, arbitration and government proceedings may adversely affect our business, financial condition and results of operations.

• Changes in laws and government regulations, including any increase in federal corporate tax rates, or our failure to adequately estimate the impact of such changes, could increase our expenses, expose us to legal risks or otherwise adversely affect us.

• Litigation, arbitration and government proceedings may adversely affect our business, financial condition and/or results of operations.

• Changes in laws and government regulations, or our failure to adequately estimate the impact of such changes, could increase our expenses, expose us to legal risks or otherwise adversely affect us.

• Our substantial indebtedness could adversely affect our financial condition, limit our ability to obtain additional financing, restrict our operations and make us more vulnerable to economic downturns and competitive pressures.

• The terms of the agreements governing our indebtedness may restrict our current and future operations, particularly our ability to respond to changes or to pursue our business strategies, and could adversely affect our capital resources, financial condition and liquidity.

• Our variable-rate indebtedness subjects us to interest rate risk, which could cause our annual debt service obligations to increase significantly.

• Our business or the value of our common stock could be negatively affected as a result of actions by shareholders.

• The price of our common stock is subject to market and other conditions and may be volatile.

• Certain provisions in our Articles of Incorporation and By-Laws could delay or discourage a change of control transaction that may be in a shareholder’s best interest.

We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

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Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not our responsibility.

The Impact of COVID-19

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

however, our business trends and financial results in 2020 were materially different than in prior years.

During March 2020, our Dollar Tree and Family Dollar stores began to experience a significant increase in customer demand and sales of 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 2020 Easter selling season, comparable store net sales at our Dollar Tree stores decreased.

After the 2020 Easter selling season, in both banners, we experienced an increase in demand for and sales of discretionary products and our seasonal business for the other holidays throughout 2020 was strong.

Easter sales were strong in both banners during 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 future consumer

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.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended January 30, 2021.

We are a leading operator of more than 16,100 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 predominantly at the fixed price point of $1.00.

Our Dollar Tree segment is the leading operator of discount variety stores offering merchandise predominantly at the fixed price of $1.25.

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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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 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:

At April 30, 2022, 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 13 weeks ended April 30, 2022 and May 1, 2021 is as follows:

13 Weeks Ended

October 30, 2021 October 31, 2020

April 30, 2022 May 1, 2021

Dollar Tree Family Dollar Total Dollar Tree Family Dollar Total

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New stores 0.4 0.6 1.0 0.5 0.4 0.9

Re-bannered stores — — — (0.1) 0.1 —

Closings (0.1) (0.1) (0.2) — (0.1) (0.1)

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

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

The average size of stores opened during the 13 weeks ended April 30, 2022 was approximately 8,580 selling square feet for the Dollar Tree segment and 8,800 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 weeks ended April 30, 2022, as compared with the preceding year, is as follows:

13 Weeks Ended April 30, 2022

Sales Growth Change in

Customer Traffic Change in

Average Ticket Sales Growth Change in

Customer Traffic Change in

Average Ticket

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Dollar Tree Initiatives

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.

In September 2021, we announced our new $1.25 price point initiative and we completed the rollout of this initiative to all Dollar Tree stores during the first quarter of fiscal 2022, increasing the price point on a majority of our $1 merchandise to $1.25.

To date, the increase in the price point has more than offset the decline in the number of units sold.

We expect to see a greater lift in gross margin in the first half of fiscal 2022 as we sell through our existing inventory.

During fiscal 2022, we have begun investing in new products and modifying existing products to provide greater value for our customers and increase customer traffic and store productivity.

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.

The roll-out of our Crafter’s Square initiative to all of our Dollar Tree stores was completed during fiscal 2020.

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

As of April 30, 2022, we have approximately 1,470 Dollar Tree Plus stores and we expect to implement the concept in a total of 1,500 stores during fiscal 2022.

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.

As of April 30, 2022, the Instacart platform covers nearly 7,000 Dollar Tree stores.

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

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

In March 2021, we announced the development of a new combination store format, which we refer to as a Combo Store, that leverages the strengths of the Dollar Tree and Family Dollar brands under one roof.

We have taken Family Dollar’s great value and assortment and blended in select Dollar Tree merchandise categories to create a new store format targeted for small towns and rural communities.

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 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.

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 approximately 6,000 Family Dollar stores across the United States.

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.

As of April 30, 2022, we operated more than 330 Combo Stores.

We are also continuing to execute our store optimization programs.

Our H2 stores have significantly improved merchandise offerings throughout the store, including the addition of approximately 20 Dollar Tree $1.00 merchandise sections and establishing a minimum number of freezer and cooler doors.

Our H2 stores have significantly improved merchandise offerings throughout the store, including the addition of Dollar Tree $1.25 merchandise items and establishing a minimum number of freezer and cooler doors.

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 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.

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 April 30, 2022, we have approximately 3,985 H2 stores.

Based on the success of the Combo Store and H2 store formats, in fiscal 2022, we anticipate adding 400 new or relocated Combo Stores in total and plan to complete 800 renovations into either the Combo Store format or the H2 store format in total.

After a successful pilot program in 2020, we entered into a partnership with Instacart in February 2021, which covers more than 6,000 Family Dollar stores across the United States as of April 30, 2022.

In addition, we added adult beverage to approximately 80 stores in the first quarter of fiscal 2022.

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

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The following trends or uncertainties have already impacted or could impact our business or results of operations during 2022 or in the future:

• 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 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 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.

• Product Availability.

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 has 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, as well as increased costs for available merchandise.

These supply chain issues have been exacerbated by the factory shutdowns that began in China in the first quarter of 2022 due to the imposition of lockdowns in certain Chinese localities to address a worsening outbreak of COVID-19.

In addition, the union collective bargaining agreement that governs the wages and benefits of a large number of longshoremen at ports in California, Oregon, and Washington is scheduled to expire on July 1, 2022, and if the parties are unable to agree on a new or extended collective bargaining agreement, there could be work stoppages or strikes that result in additional shipping delays and disruptions which could adversely affect the availability of imported merchandise and increase our costs.

If these shipping delays and other supply chain issues do not improve, we believe they will continue to have a material adverse impact on product availability and product mix, and on our sales and merchandise margin.

We could also experience higher markdowns.

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 and holiday merchandise.

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

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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.

This trend, which accelerated in the second half of fiscal 2021, is likely to continue during fiscal 2022.

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 $2.00 per diluted share higher than fiscal year 2020.

Due to these trends, in the first half of fiscal 2022, we expect import and domestic freight to present relatively higher cost pressure as compared to the first half of fiscal 2021.

In addition, diesel fuel prices are and are expected to remain significantly higher in fiscal 2022 and may increase further because of international tensions.

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 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.

The steps we have taken to address the labor shortage at our distribution centers include hosting national hiring events, paying sign-on bonuses, offering enhanced wages in select competitive markets and paying tuition reimbursement.

• Minimum Wage Increases.

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.

• Labor Shortage and Wage Increases.

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

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

The steps we have taken to address the labor shortage include hosting national hiring events, paying sign-on bonuses in our distribution centers, offering enhanced wages in select competitive markets, and paying tuition reimbursement.

In 2022, the minimum wage has increased in certain States and localities.

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.

Minimum wage increases in States and localities and wage investments in certain markets are expected to increase our costs by more than $195.0 million in 2022.

• Build-out and C onstruction Costs and Delays.

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

• COVID-19 Costs.

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.

We expect these costs to be approximately $30.0 million in fiscal 2021.

• Shrink Costs.

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.

• Impact of COVID-19.

The future course of the COVID-19 pandemic, the timing and impact of any governmental responses to future outbreaks and the effectiveness of health measures such as vaccines remains uncertain.

As a result, it is challenging for us to predict the future impact of COVID-19 on our business, financial results, customers, suppliers and the broader economies in the locations that we operate as well as the future impact on our supply chain and the global supply chain.

• West Memphis Distribution Center.

On February 11, 2022, the Food and Drug Administration issued Form 483 observations primarily regarding rodent infestation at our West Memphis, Arkansas distribution center (“DC 202”), as well as other items that require remediation.

During the first quarter of fiscal 2022, we incurred costs totaling $0.13 per diluted share related to the product recall, remediation efforts and asset impairment.

In the second quarter of fiscal 2022, we announced plans to close DC 202 and we expect to incur an estimated $0.22 per diluted share for lost sales, freight, merchandise disposal, payroll and legal costs associated with the remediation and closure of the facility.

• Strategic Investments.

Building on our current initiatives, we are currently developing plans to make additional multi-year strategic investments across both banners to further position the company for long-term sustained growth.

We anticipate that that these investments will relate to four key areas of our business:

our associates, our distribution center network and supply chain, our product pricing and value proposition, and our technology infrastructure.

Within these areas, the focus of these investments is expected to be on associate wages, improved store execution, enhanced safety and working conditions, increased supply chain efficiencies, competitive pricing at Family Dollar, and enhancements to our systems infrastructure.

However, our plans have not been finalized at this time, and there is uncertainty regarding the amount and timing of these investments and the impact of such investments on our future business and results of operations.

Results of Operations

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The selling, general and administrative expense rate and operating income margin are calculated by dividing the applicable amount by total revenue.

13 Weeks Ended 39 Weeks Ended

October 30, October 31, Percentage

Change October 30, October 31, Percentage

13 Weeks Ended

April 30, May 1, Percentage

(dollars in millions) 2022 2021

2 unchanged sentences

on a constant currency basis 4.4 % 0.8 %

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.

The increase in net sales in the 13 weeks ended April 30, 2022 was a result of sales of $ 185.5 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 4.4% on a constant currency basis in the 13 weeks ended April 30, 2022, as a result of an 8.4% increase in average ticket, partially offset by a 3.6% decrease in customer traffic.

Comparable store net sales increased the same 4.4% 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 11.2% in the Dollar Tree segment and decreased 2.8% 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

October 30, October 31, Percentage

Change October 30, October 31, Percentage

13 Weeks Ended

April 30, May 1, Percentage

(dollars in millions) 2022 2021

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Gross profit margin 33.9 % 30.3 % 3.6 %

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 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.

The increase in gross profit margin in the 13 weeks ended April 30, 2022 was a result of the net of the following:

• Merchandise cost, including freight, decreased 365 basis points resulting primarily from higher initial mark-on on both segments and increased sales of higher margin discretionary merchandise on the Dollar Tree segment, partially offset by higher freight costs and increased sales of lower margin consumable merchandise on the Family Dollar segment.

• Distribution costs decreased 35 basis points due to leverage from the comparable store net sales increase on the Dollar Tree segment and higher capitalized amounts due to increases in inventory levels on both segments, partially offset by higher hourly wages.

• Occupancy costs decreased 15 basis points due to leverage from the comparable store net sales increase.

• Shrink costs increased 10 basis points in the current year quarter resulting from more favorable inventory results in relation to accruals in the prior year quarter.

• Markdown costs increased 45 basis points due to higher clearance markdowns resulting from a move to a higher value assortment at the $1.25 price point on the Dollar Tree segment and as a result of shipping delays of seasonal merchandise and slow moving inventory items on the Family Dollar segment.

Selling, General and Administrative Expenses

13 Weeks Ended 39 Weeks Ended

October 30, October 31, Percentage

Change October 30, October 31, Percentage

13 Weeks Ended

April 30, May 1, Percentage

(dollars in millions) 2022 2021

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expense rate 23.3 % 22.3 % 1.0 %

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.

The increase in the selling, general and administrative expense rate in the 13 weeks ended April 30, 2022 was the result of the following:

• Other selling, general and administrative expenses increased 70 basis points primarily due to long-lived asset impairments at the Family Dollar West Memphis, Arkansas distribution center, higher legal fees, including costs related to the reconstitution of the Board of Directors, and higher store supplies expense.

• Store facility costs increased 15 basis points primarily due to costs associated with the removal of product from certain Family Dollar stores in connection with the voluntary retail-level product recall.

• Payroll expenses increased 10 basis points primarily due to minimum wage increases and other investments in store payroll and higher incentive compensation expenses, offset partially by leverage from the comparable store net sales increase.

• Depreciation and amortization expense increased 5 basis points primarily due to capital expenditures related to store renovations and improvements, partially offset by leverage from the comparable store net sales increase.

Operating Income

13 Weeks Ended 39 Weeks Ended

October 30, October 31, Percentage

Change October 30, October 31, Percentage

13 Weeks Ended

April 30, May 1, Percentage

(dollars in millions) 2022 2021

1 unchanged sentence

Operating income margin 10.6 % 8.0 % 2.6 %

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.

Operating income margin increased to 10.6% for the 13 weeks ended April 30, 2022 compared to 8.0% for the same period last year resulting from the increase in gross profit margin, partially offset by the increase in the selling, general and administrative expense rate, as described above.

Interest Expense, Net

13 Weeks Ended 39 Weeks Ended

October 30, October 31, Percentage

Change October 30, October 31, Percentage

13 Weeks Ended

April 30, May 1, Percentage

(dollars in millions) 2022 2021

Interest expense, net $ 34.0 $ 33.0 3.0 %

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.

Interest expense, net increased $1.0 million in the 13 weeks ended April 30, 2022 compared to the same period last year.

Provision for Income Taxes

13 Weeks Ended 39 Weeks Ended

October 30, October 31, Percentage

Change October 30, October 31, Percentage

13 Weeks Ended

April 30, May 1, Percentage

(dollars in millions) 2022 2021

1 unchanged sentence

Effective tax rate 23.1 % 23.1 % — %

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.

The effective tax rate was 23.1% for both the 13 weeks ended April 30, 2022 and the comparable prior year period.

Higher state tax rates and lower Work Opportunity Tax credits as a percentage of pre-tax income in the current year quarter were offset by higher tax deductions related to restricted stock vesting.

Segment Information

1 unchanged sentence

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

13 Weeks Ended 39 Weeks Ended

October 30, October 31, Percentage

Change October 30, October 31, Percentage

13 Weeks Ended

April 30, May 1, Percentage

(dollars in millions) 2022 2021

4 unchanged sentences

Operating income margin 20.2 % 12.1 % 8.1 %

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.

Net sales for the Dollar Tree segment increased $460.5 million, or 13.9%, for the 13 weeks ended April 30, 2022 compared to the same period last year.

The increase was due to an increase in comparable store net sales of 11.2% and $111.1 m illion of new store sales.

Average ticket increased 15.4% and customer traffic decreased 3.6%.

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 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.

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.

• 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.

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.

During the 13 weeks ended April 30, 2022, we completed the rollout of our $1.25 price point initiative which increased the selling price of the majority of our $1 merchandise to $1.25.

The increase in price point more than offset the decline in the number of units sold during the quarter.

Gross profit margin for the Dollar Tree segment increased to 40.6% for the 13 weeks ended April 30, 2022 compared to 33.7% for the same period last year as a result of the net of the following:

• Merchandise cost, including freight, decreased 590 basis points primarily due to higher initial mark-on and increased sales of higher margin discretionary merchandise, partially offset by higher freight costs.

• Occupancy costs decreased 80 basis points primarily due to leverage from the comparable store net sales increase.

• Distribution costs decreased 50 basis points due to leverage from the comparable store net sales increase and higher capitalized balances resulting from increases in inventory levels in the current quarter, partially offset by higher hourly wages.

• Markdown costs increased 30 basis points resulting primarily from markdowns for clearance items as we move to a higher value assortment at the $1.25 price point.

Operating income margin for the Dollar Tree segment increased to 20.2% for the 13 weeks ended April 30, 2022 from 12.1% for the same period last year as a result of the gross profit margin increase noted above and a decrease in the selling, general and administrative expense rate.

The selling, general and administrative expense rate decreased to 20.4% in the 13 weeks ended April 30, 2022 compared to 21.6% for the same period last year as a result of the net of the following:

• Payroll expenses decreased 100 basis points primarily due to leverage from the comparable store net sales increase, partially offset by minimum wage increases and other investments in store payroll as well as higher incentive compensation expenses.

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

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

• Other selling, general and administrative expenses increased 10 basis points primarily due to higher store supplies expense in connection with the $1.25 price point initiative as well as higher costs for supplies.

Family Dollar

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

13 Weeks Ended 39 Weeks Ended

October 30, October 31, Percentage

Change October 30, October 31, Percentage

13 Weeks Ended

April 30, May 1, Percentage

(dollars in millions) 2022 2021

4 unchanged sentences

Operating income margin 2.9 % 6.7 % (3.8) %

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 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 decreased to 25.8% for the 39 weeks ended October 30, 2021 compared to 26.4% for the same period last year.

Net sales for the Family Dollar segment decreased $37.2 million, or 1.2%, for the 13 weeks ended April 30, 2022 compared to the same period last year.

The decrease was due to a comparable store net sales decrease of 2.8%, partially offset by $74.4 million of new store sales.

For the 13 weeks ended April 30, 2022, average ticket increased 1.0% and customer traffic declined 3.7%.

Customers received significant government stimulus dollars in the prior year quarter.

In addition, during the 13 weeks ended April 30, 2022, approximately 400 stores serviced by the West Memphis, Arkansas distribution center were temporarily closed in connection with the voluntary retail-level product recall.

The Family Dollar comparable store net sales decrease was 0.8% when excluding the effect of the store closures.

Gross profit margin for the Family Dollar segment decreased to 25.8% for the 13 weeks ended April 30, 2022 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 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 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 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 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.

• Markdown costs increased 75 basis points primarily due to higher clearance markdowns related to the shipping delays in seasonal merchandise and slow moving inventory items.

• Occupancy costs increased 45 basis points primarily due to loss of leverage from the comparable store net sales decrease and higher real estate tax expenses.

• Shrink expense increased 25 basis points in the current year quarter resulting from more favorable inventory results in relation to accruals in the prior year quarter.

• Distribution costs decreased 15 basis points due to higher capitalized balances resulting from increases in inventory levels in the current quarter, partially offset by higher hourly wages.

• Merchandise cost, including freight, decreased 35 basis points primarily due to higher initial mark-on, partially offset by higher freight costs and higher sales of lower margin consumable merchandise.

Operating income margin for the Family Dollar segment decreased to 2.9% for the 13 weeks ended April 30, 2022 from 6.7% for the same period last year resulting from the gross profit margin decrease noted above and an increase in the selling, general and administrative expense rate.

The selling, general and administrative expense rate was 23.0% in the 13 weeks ended April 30, 2022 compared to 20.2% for the same period last year.

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

• Payroll expenses increased 90 basis points primarily due to minimum wage increases and other investments in store payroll as well as loss of leverage from the decrease in comparable store net sales.

• Other selling, general and administrative expenses increased 85 basis points primarily due to long-lived asset impairments at the West Memphis, Arkansas distribution center, loss of leverage from the decrease in comparable store net sales, higher store supplies expense related to store projects as well as higher cost of supplies, and higher legal fees.

• Store facility costs increased 65 basis points primarily due to costs associated with the removal of product from certain stores in connection with the voluntary retail-level product recall and loss of leverage from the decrease in comparable store net sales.

• Depreciation and amortization expense increased 40 basis points primarily due to loss of leverage from the decrease in comparable store net sales and capital expenditures related to store renovations and improvements.

Liquidity and Capital Resources

2 unchanged sentences

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

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

The following table compares cash flow-related information for the 13 weeks ended April 30, 2022 and May 1, 2021:

13 Weeks Ended

October 30, October 31,

April 30, May 1,

(in millions) 2022 2021

3 unchanged sentences

Financing activities (49.1) (276.6)

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.

Net cash provided by operating activities decreased $17.7 million primarily due to higher inventory levels and decreased trade payables, partially offset by higher current year earnings, net of non-cash items and higher accrued liability balances.

Net cash used in investing activities increased $33.5 million primarily due to higher capital expenditures in the current year quarter.

Net cash used in financing activities decreased $227.5 million primarily due to $14.2 million of cash paid for stock repurchases in the current year quarter compared to $241.3 million in the prior year quarter.

At April 30, 2022, our long-term borrowings were $3.45 billion and we had $1.5 billion available under our Revolving Credit Facility, less amounts outstanding for standby letters of credit totaling $45.9 million.

We also have $425.0 million in Letter of Credit Reimbursement and Security Agreements with various financial institutions, under which $330.6 million was committed to letters of credit issued for routine purchases of imported merchandise as of April 30, 2022.

We repurchased 89,779 shares of common stock on the open market for $14.2 million during the 13 weeks ended April 30, 2022.

We repurchased 2,150,572 shares of common stock on the open market for $250.0 million during the 13 weeks ended May 1, 2021.

Of the shares repurchased during the 13 weeks ended May 1, 2021, approximately $8.7 million had not settled as of May 1, 2021 and this amount was accrued in the accompanying unaudited condensed consolidated balance sheet as of May 1, 2021.

At April 30, 2022, we had $2.5 billion remaining under Board repurchase authorization.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis