What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-25 compared with 2022-05-26 · 181 added, 111 removed, 196 unchanged (60% of the section changed)

6 unchanged sentences

For example, our forward-looking statements include, without limitation, statements regarding:

• 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 these cost increases;

• Our expectations regarding the impact of continued supply chain challenges on our product availability, product mix, sales and merchandise margin, including uncertainties associated with delays in receiving imported merchandise from Asia and the potential increase in our costs if inventory levels exceed the storage capacity of our distribution centers;

• Our expectations regarding higher oceanic shipping and domestic freight and fuel costs;

• 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 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;

• Our expectations regarding the effect of general business or economic conditions on our business and results of operations, including the effects of inflation and labor shortages 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 any future impact on 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;

4 unchanged sentences

• 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 relating to new store openings and new store concepts such as Dollar Tree Plus and our Combo 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;

48 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 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:

At July 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 26 weeks ended July 30, 2022 and July 31, 2021 is as follows:

26 Weeks Ended

April 30, 2022 May 1, 2021

July 30, 2022 July 31, 2021

Dollar Tree Family Dollar Total Dollar Tree Family Dollar Total

8 unchanged sentences

New stores 0.6 1.5 2.1 1.3 0.7 2.0

Re-bannered stores — 0.1 0.1 — — —

Closings (0.2) (0.4) (0.6) (0.2) (0.2) (0.4)

2 unchanged sentences

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

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.

The average size of stores opened during the 26 weeks ended July 30, 2022 was approximately 8,540 selling square feet for the Dollar Tree segment and 8,920 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

The percentage change in comparable store net sales on a constant currency basis for the 13 and 26 weeks ended July 30, 2022, as compared with the preceding year, is as follows:

13 Weeks Ended July 30, 2022 26 Weeks Ended July 30, 2022

Sales Growth Change in

Customer Traffic Change in

Average Ticket Sales Growth Change in

Customer Traffic Change in

Average Ticket

9 unchanged sentences

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.

As expected, we saw a lift in gross margin in the first half of fiscal 2022 as we sold 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.

While we expect our gross margin to be higher in the second half of fiscal 2022 compared with the second half of fiscal 2021, because of the investments in new products, we do not expect the increase to be as high as it was in the first half of fiscal 2022.

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

As of July 30, 2022, we have approximately 2,170 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 delivery service at Dollar Tree stores in the third quarter of fiscal 2021.

As of July 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.

4 unchanged sentences

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.

As of July 30, 2022, we operated more than 540 Combo Stores.

We are also continuing to execute our store optimization programs.

2 unchanged sentences

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.

As of July 30, 2022, we have approximately 4,095 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 completing a total of 700 renovations into either the Combo Store format or the H2 store format.

In addition, we added adult beverage to approximately 270 stores in the first half of fiscal 2022.

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

1 unchanged sentence

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

• 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.

To address delays in shipments, we are prioritizing product categories for shipment in an effort to obtain seasonal assortments in advance of holiday seasons, adding and evaluating the use of long-term and short-term chartered vessels, and adding alternative sources of supply from North American factories.

• Anticipated Pressures on Margins .

Our financial performance is impacted by numerous factors, including changes in consumer spending behavior and increased costs due to inflation.

We are currently experiencing a material shift in consumer purchasing from higher-margin discretionary merchandise to lower-margin consumable goods which has negatively impacted our product mix and margins.

We also are experiencing inflationary price pressures relating to, among other things, merchandise costs, freight costs, wages, utility costs, and repair and maintenance expenses.

In addition, we have begun making our planned competitive pricing investments at Family Dollar to improve its value proposition and drive store traffic and productivity.

We expect that the consumer’s shift to lower-margin consumable goods and any inflation-related cost increases, coupled with our planned investments in product pricing and our value proposition, will pressure gross margins in the second half of fiscal 2022.

• Supply Chain and Inventory .

We rely heavily on Trans-Pacific shipping and domestic trucking and rail freight to acquire and distribute merchandise to our distribution centers and retail stores.

Significant disruptions in our supply chain, such as the shipping delays resulting from the COVID-19 pandemic, have negatively impacted our sales and the cost and availability of product in the stores.

Although we may continue to experience oceanic shipping delays in the future as a result of shipping capacity shortages, port congestion or closings, and the imposition of lockdowns in certain Chinese localities to address COVID-19 outbreaks, our ability to ship products from overseas on a timely basis has improved in recent months.

This improvement has led to an increase in inventory that is in route to or being held in our distribution centers.

To the extent that increased inventory levels exceed the storage capacity of our distribution centers, we will need to arrange for temporary offsite warehouse storage facilities and we may incur detention costs and incremental drayage costs, which will increase our cost of goods sold.

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 expired on July 1, 2022.

If the parties are unable to agree on a new or extended collective bargaining agreement, there could be work slowdowns or strikes that result in additional delays and disruptions in our supply chain which could adversely affect the availability of merchandise and increase our costs.

We could also experience higher markdowns as a result of these supply chain challenges.

Sales could be negatively impacted if we are not able to deliver inventory timely to stock our stores.

• Freight Costs .

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

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.

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.

This trend, which accelerated in the second half of fiscal 2021, has continued during fiscal 2022.

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

Although Trans-Pacific shipping continues to be pressured, spot market prices have moderated recently as availability of containers and shipping capacity has improved.

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

We are a large importer of merchandise from Asia and rely heavily on domestic freight to transport goods to our distribution centers and stores, which makes us particularly sensitive to freight costs.

Due to these trends, in the first half of fiscal 2022, import and domestic freight costs were higher compared to the first half of fiscal 2021.

• Labor Shortage and Wage Increases.

2 unchanged sentences

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.

In 2022, the minimum wage has increased in certain States and localities, and proposals to increase the federal minimum wage have been introduced in Congress.

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 20 22.

3 unchanged sentences

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

Sales will be negatively impacted if we are not able to complete these projects on time.

• Impact of COVID-19.

3 unchanged sentences

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.

During the first half of fiscal 2022, we incurred costs related to the product recall, remediation efforts and asset impairment.

We expect to incur additional costs in the second half of fiscal 2022 for freight, merchandise disposal, payroll and legal costs associated with the remediation.

• 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:

We anticipate 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.

5 unchanged sentences

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

13 Weeks Ended

April 30, May 1, Percentage

13 Weeks Ended 26 Weeks Ended

July 30, July 31, Percentage

Change July 30, July 31, Percentage

(dollars in millions) 2022 2021 2022 2021

2 unchanged sentences

on a constant currency basis 4.9 % (1.2) % 4.7 % (0.2) %

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.

The increase in net sales in the 13 weeks ended July 30, 2022 was a result of sales of $178.8 million at new stores and comparable store net sales increases in the Dollar Tree and Family Dollar segments.

Enterprise comparable store net sales increased 4.9% on a constant currency basis in the 13 weeks ended July 30, 2022, as a result of a 9.2% increase in average ticket, partially offset by a 4.0% decrease in customer traffic.

Comparable store net sales increased 4.8% when including the impact of Canadian currency fluctuations.

On a constant currency basis, comparable store net sales increased 7.5% in the Dollar Tree segment and increased 2.0% in the Family Dollar segment.

The increase in net sales in the 26 weeks ended July 30, 2022 was a result of sales of $364.3 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 4.7% on a constant currency basis in the 26 weeks ended July 30, 2022, as a result of an 8.8% increase in average ticket, partially offset by a 3.8% decrease in customer traffic.

Comparable store net sales increased 4.6% when including the impact of Canadian currency fluctuations.

On a constant currency basis, comparable store net sales increased 9.4% in the Dollar Tree segment and decreased 0.4% in the Family Dollar segment.

13 Weeks Ended

April 30, May 1, Percentage

13 Weeks Ended 26 Weeks Ended

July 30, July 31, Percentage

Change July 30, July 31, Percentage

(dollars in millions) 2022 2021 2022 2021

1 unchanged sentence

Gross profit margin 31.4 % 29.4 % 2.0 % 32.7 % 29.8 % 2.9 %

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.

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

• Merchandise cost, which includes freight, decreased 245 basis points resulting primarily from higher initial mark-on, partially offset by higher freight costs and increased sales of lower margin consumable merchandise.

• Occupancy costs decreased 20 basis points due to leverage from the comparable store net sales increase.

• Distribution costs decreased 10 basis points due to leverage from the comparable store net sales increase and higher capitalized amounts due to increases in inventory levels, partially offset by higher hourly wages and higher maintenance and compliance costs in our distribution centers.

• Shrink costs increased 30 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.

• Markdown costs increased 40 basis points primarily due to higher promotional and clearance markdowns on the Family Dollar segment and higher clearance markdowns resulting from a move to a higher value assortment at the $1.25 price point on the Dollar Tree segment.

The increase in gross profit margin in the 26 weeks ended July 30, 2022 was a result of the net of the following:

• Merchandise cost, which includes freight, decreased 305 basis points resulting primarily from higher initial mark-on, partially offset by higher freight costs and increased sales of lower margin consumable merchandise on the Family Dollar segment.

• Distribution costs decreased 20 basis points due to leverage from the comparable store net sales increase and higher capitalized amounts resulting from increases in inventory levels, partially offset by higher hourly wages and higher maintenance and compliance costs in our distribution centers.

• Occupancy costs decreased 20 basis points due to leverage from the comparable store net sales increase.

• Shrink costs increased 20 basis points in the current year resulting from more favorable inventory results in relation to accruals in the prior year.

• Markdown costs increased 45 basis points primarily due to higher promotional and clearance markdowns on the Family Dollar segment and higher clearance markdowns resulting from a move to a higher value assortment at the $1.25 price point on the Dollar Tree segment.

Selling, General and Administrative Expenses

13 Weeks Ended

April 30, May 1, Percentage

13 Weeks Ended 26 Weeks Ended

July 30, July 31, Percentage

Change July 30, July 31, Percentage

(dollars in millions) 2022 2021 2022 2021

3 unchanged sentences

expense rate 24.0 % 23.0 % 1.0 % 23.7 % 22.7 % 1.0 %

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

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

• Other selling, general and administrative expenses increased 45 basis points primarily due to unfavorable development of general liability insurance claims, higher legal fees, higher debit and credit fees and inflationary pressure across several expense categories.

• Store facility costs increased 30 basis points primarily due to higher utility costs and an increase in repairs and maintenance expenses as we focus on store conditions for our customers and associates.

• Payroll expenses increased 5 basis points primarily due to minimum wage increases and other investments in store payroll and higher stock compensation expenses, partially offset by leverage from the comparable store net sales increase.

• Depreciation and amortization expense increased 10 basis points primarily due to capital expenditures related to store renovations and improvements, partially offset by leverage from the comparable store net sales increase.

The increase in the selling, general and administrative expense rate in the 26 weeks ended July 30, 2022 was the result of the following:

• Other selling, general and administrative expenses increased 60 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.

• Store facility costs increased 20 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, higher utility costs and higher repairs and maintenance expenses as we focus on store conditions for our customers and associates.

Operating Income

13 Weeks Ended

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13 Weeks Ended 26 Weeks Ended

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Change July 30, July 31, Percentage

(dollars in millions) 2022 2021 2022 2021

1 unchanged sentence

Operating income margin 7.5 % 6.3 % 1.2 % 9.0 % 7.2 % 1.8 %

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.

Operating income margin increased to 7.5% for the 13 weeks ended July 30, 2022 compared to 6.3% 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.

Operating income margin increased to 9.0% for the 26 weeks ended July 30, 2022 compared to 7.2% 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

April 30, May 1, Percentage

13 Weeks Ended 26 Weeks Ended

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Change July 30, July 31, Percentage

(dollars in millions) 2022 2021 2022 2021

Interest expense, net $ 30.6 $ 33.0 (7.3) % $ 64.6 $ 66.0 (2.1) %

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

Interest expense, net decreased $2.4 million in the 13 weeks ended July 30, 2022 compared to the same period last year, resulting from higher interest income on investments.

Interest expense, net decreased $1.4 million in the 26 weeks ended July 30, 2022 compared to the same period last year, resulting from higher interest income on investments.

Provision for Income Taxes

13 Weeks Ended

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13 Weeks Ended 26 Weeks Ended

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Change July 30, July 31, Percentage

(dollars in millions) 2022 2021 2022 2021

1 unchanged sentence

Effective tax rate 24.2 % 23.5 % 0.7 % 23.5 % 23.3 % 0.2 %

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.

The effective tax rate was 24.2% for the 13 weeks ended July 30, 2022 compared to 23.5% for the comparable prior year period, resulting 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 was 23.5% for the 26 weeks ended July 30, 2022 compared to 23.3% for 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 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

April 30, May 1, Percentage

13 Weeks Ended 26 Weeks Ended

July 30, July 31, Percentage

Change July 30, July 31, Percentage

(dollars in millions) 2022 2021 2022 2021

4 unchanged sentences

Operating income margin 15.4 % 10.1 % 5.3 % 17.9 % 11.1 % 6.8 %

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.

Net sales for the Dollar Tree segment increased $306.8 million, or 9.4%, for the 13 weeks ended July 30, 2022 compared to the same period last year.

The increase was due to an increase in comparable store net sales of 7.5% and $91.8 million of new store sales.

Average ticket increased 14.2% and customer traffic decreased 5.8%.

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.

The 13 weeks ended July 30, 2022 includes the impact of our $1.25 price point initiative which increased the selling price of the majority of our $1 merchandise to $1.25.

The rollout of this initiative was completed during the first quarter of fiscal 2022.

The increase in price point more than offset the decline in the number of units sold during the second quarter of fiscal 2022.

Net sales for the Dollar Tree segment increased $767.3 million, or 11.7%, for the 26 weeks ended July 30, 2022 compared to the same period last year.

The increase was due to an increase in comparable store net sales of 9.4% and $202.9 million of new store sales.

Average ticket increased 14.8% and customer traffic decreased 4.7%.

The 26 weeks ended July 30, 2022 was impacted by our $1.25 price point initiative.

The increase in price point more than offset the decline in the number of units sold during the first half of fiscal 2022.

Gross profit margin for the Dollar Tree segment increased to 37.4% for the 13 weeks ended July 30, 2022 compared to 32.4% for the same period last year as a result of the net of the following:

• Merchandise cost, which includes freight, decreased 455 basis points primarily due to higher initial mark-on, partially offset by higher freight costs.

• Occupancy costs decreased 50 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.

• Distribution costs decreased 20 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 year, partially offset by higher hourly wages and higher maintenance and compliance costs in our distribution centers.

• Markdown costs increased 5 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.

• Shrink costs increased 20 basis points in the current year resulting from more favorable inventory results in relation to accruals in the prior year quarter.

Gross profit margin for the Dollar Tree segment increased to 39.0% for the 26 weeks ended July 30, 2022 compared to 33.0% for the same period last year as a result of the net of the following:

• Merchandise cost, which includes freight, decreased 525 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 65 basis points primarily due to leverage from the comparable store net sales increase.

• Distribution costs decreased 35 basis points due to leverage from the comparable store net sales increase and higher capitalized balances resulting from increases in inventory levels, partially offset by higher hourly wages.

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

• Markdown costs increased 20 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 15.4% for the 13 weeks ended July 30, 2022 from 10.1% 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 22.0% in the 13 weeks ended July 30, 2022 compared to 22.3% for the same period last year as a result of the net of the following:

• Payroll expenses decreased 90 basis points primarily due to leverage from the comparable store net sales increase and favorable development of workers’ compensation claims, partially offset by minimum wage increases and other investments in store payroll.

• Other selling, general and administrative expenses increased 40 basis points primarily due to unfavorable development of general liability insurance claims and inflationary pressure across several expense categories.

• Store facility costs increased 10 basis points primarily due to higher utility costs and an increase in repairs and maintenance expenses as we focus on store conditions for our customers and associates.

• Depreciation and amortization expense was flat as capital expenditures related to store renovations and improvements were offset by leverage from the comparable store net sales increase.

Operating income margin for the Dollar Tree segment increased to 17.9% for the 26 weeks ended July 30, 2022 from 11.1% 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 21.1% in the 26 weeks ended July 30, 2022 compared to 21.9% for the same period last year as a result of the net of the following:

• Payroll expenses decreased 95 basis points primarily due to leverage from the comparable store net sales increase and favorable development of workers’ compensation claims, partially offset by minimum wage increases and other investments in store payroll.

• Store facility costs decreased 10 basis points primarily due to leverage from the comparable store net sales increase, partially offset by an increase in repairs and maintenance expenses as we focus on store conditions for our customers and associates.

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

• Other selling, general and administrative expenses increased 25 basis points primarily due to unfavorable development of general liability claims, higher store supplies expense in connection with the $1.25 price point initiative, and inflationary pressure across several expense categories.

Family Dollar

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

13 Weeks Ended

April 30, May 1, Percentage

13 Weeks Ended 26 Weeks Ended

July 30, July 31, Percentage

Change July 30, July 31, Percentage

(dollars in millions) 2022 2021 2022 2021

4 unchanged sentences

Operating income margin 1.7 % 5.1 % (3.4) % 2.3 % 5.9 % (3.6) %

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.

Net sales for the Family Dollar segment increased $118.3 million, or 3.8%, for the 13 weeks ended July 30, 2022 compared to the same period last year.

The increase was due to a comparable store net sales increase of 2.0% and $ 87.0 million of new store sales.

For the 13 weeks ended July 30, 2022, average ticket increased 3.3% and customer traffic declined 1.2%.

Net sales for the Family Dollar segment increased $81.1 million, or 1.3%, for the 26 weeks ended July 30, 2022 compared to the same period last year.

The increase was due to $161.4 million of new store sales, partially offset by a comparable store net sales decrease of 0.4%.

For the 26 weeks ended July 30, 2022, average ticket increased 2.1% and customer traffic declined 2.4%.

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

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 Family Dollar comparable store net sales increased 0.5% when excluding the effect of the store closures.

Gross profit margin for the Family Dollar segment decreased to 24.7% for the 13 weeks ended July 30, 2022 compared to 26.1% for the same period last year.

The decrease is due to the following:

• Markdown costs increased 80 basis points primarily due to higher clearance and promotional markdowns.

• Shrink expense increased 45 basis points in the current year quarter resulting from more favorable inventory results in relation to accruals in the prior year quarter.

• Merchandise cost, which includes freight, increased 15 basis points primarily due to higher freight costs and higher sales of lower margin consumable merchandise, partially offset by higher initial mark-on.

• Distribution costs were flat compared with the prior year quarter as higher capitalized balances resulting from increases in inventory levels in the current year offset higher hourly wages and higher maintenance and compliance costs in our distribution centers.

Gross profit margin for the Family Dollar segment decreased to 25.3% for the 26 weeks ended July 30, 2022 compared to 26.5% for the same period last year.

The decrease is due to the net of the following:

• 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.

• Markdown costs increased 75 basis points primarily due to higher clearance and promotional markdowns.

• Occupancy costs increased 25 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.

• Shrink expense increased 35 basis points in the current year resulting from more favorable inventory results in relation to accruals in the prior year.

• Distribution costs decreased 10 basis points due to higher capitalized balances resulting from increases in inventory levels in the current year, partially offset by higher hourly wages and higher maintenance and compliance costs in our distribution centers.

• Merchandise cost, which includes freight, decreased 10 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 1.7% for the 13 weeks ended July 30, 2022 from 5.1% 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 July 30, 2022 compared to 21.0% 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.

• Payroll expenses increased 70 basis points primarily due to minimum wage increases and other investments in store payroll and an increase in workers’ compensation expense due to favorable accrual adjustments in the prior year, partially offset by lower incentive compensation expenses.

• Store facility costs increased 50 basis points primarily due to higher utility costs and an increase in repairs and maintenance expenses as we focus on store conditions for our customers and associates.

• Other selling, general and administrative expenses increased 45 basis points primarily due to higher legal fees, higher debit and credit fees, higher store supplies expense related to store projects and inflationary pressure across several expense categories.

• Depreciation and amortization expense increased 30 basis points primarily due to capital expenditures related to store renovations and improvements.

Operating income margin for the Family Dollar segment decreased to 2.3% for the 26 weeks ended July 30, 2022 from 5.9% 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 26 weeks ended July 30, 2022 compared to 20.6% for the same period last year.

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

• Payroll expenses increased 80 basis points primarily due to minimum wage increases and other investments in store payroll, an increase in workers’ compensation expense due to favorable accrual adjustments in the prior year and loss of leverage from the decrease in comparable store net sales.

• Other selling, general and administrative expenses increased 65 basis points primarily due to long-lived asset impairments at the West Memphis, Arkansas distribution center, higher legal fees, higher debit and credit fees, higher store supplies expense related to store projects, loss of leverage from the decrease in comparable store net sales and inflationary pressure across several expense categories.

• Store facility costs increased 60 basis points primarily due to costs associated with the removal of product from certain stores in connection with the voluntary retail-level product recall, higher utility costs, higher repairs and maintenance expenses as we focus on store conditions for our customers and associates and loss of leverage from the decrease in comparable store net sales.

• Depreciation and amortization expense increased 30 basis points primarily due to capital expenditures related to store renovations and improvements and loss of leverage from the decrease in comparable store net sales.

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 13 weeks ended April 30, 2022 and May 1, 2021:

The following table compares cash flow-related information for the 26 weeks ended July 30, 2022 and July 31, 2021:

26 Weeks Ended

April 30, May 1,

July 30, July 31,

(in millions) 2022 2021

3 unchanged sentences

Financing activities (283.3) (980.8)

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.

Net cash provided by operating activities decreased $215.5 million primarily due to higher inventory levels, partially offset by higher current year earnings, net of non-cash items and higher accrued liability balances.

Net cash used in investing activities increased $81.9 million primarily due to higher capital expenditures in the current year.

Net cash used in financing activities decreased $697.5 million primarily due to $250.0 million of cash paid for stock repurchases in the current year compared to $947.5 million in the prior year.

At July 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 $45.3 million.

We also have $425.0 million in Letter of Credit Reimbursement and Security Agreements with various financial institutions, under which $324.3 million was committed to letters of credit issued for routine purchases of imported merchandise as of July 30, 2022.

We repurchased 1,754,496 and 9,156,898 shares of common stock on the open market during the 26 weeks ended July 30, 2022 and July 31, 2021, respectively, for $250.0 million and $950.0 million, respectively.

Of the shares repurchased during the 26 weeks ended July 31, 2021, approximately $2.5 million 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.

At July 30, 2022, we had $2.25 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