What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-25 compared with 2022-11-22 · 106 added, 242 removed, 136 unchanged (72% of the section changed)

6 unchanged sentences

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

• 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 expected increases in our costs due to inventory levels exceeding the storage capacity of our distribution centers;

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

• Our expectations regarding consumer spending behavior and inflation-related cost increases, including the impact on our gross margins;

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

• Our expectations regarding 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;

• 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), including with respect to the availability of indemnification or insurance;

• 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 and our investments in new products, 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 Combo Store format;

• Our plans and expectations regarding our current initiatives and future strategic investments and the uncertainty with respect to the amount, timing and impact of those initiatives and 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, limitations on the availability of certain fixtures and equipment and construction, permitting and inspection delays related to new store openings.

• Our expectations regarding the impact of investments in new products on the gross margin of our Dollar Tree banner;

• 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), and the availability of indemnification or insurance with respect to such matters;

• Our plans to renovate existing Family Dollar stores, continue the addition of adult beverage product to our stores, and build new stores in the H2 store format, and our expectations regarding the performance of the H2 format on our results of operations;

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

• Our expectations regarding the impact of inflation on our business;

• Our cash needs, including our ability to fund our future capital expenditures and working capital requirements.

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

3 unchanged sentences

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

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

• Our profitability is vulnerable to increases in merchandise, shipping, 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.

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• 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.

• Changes in laws and government regulations or in other stakeholder expectations concerning business conduct, or our failure to adequately estimate the impact of such changes or expectations, 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.

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First is our success at opening new stores.

Second is the performance of stores once they are open.

Sales vary at our existing stores from one year to the next.

Second is the performance of stores once they are open which can be impacted by a number of factors including operational performance, competition, inflation and changes in the product assortment, pricing, or quality.

Sales vary at our existing

stores from one year to the next.

We refer to this as a change in comparable store net sales, because we include only those stores that are open throughout both of the periods being compared, beginning after the first fifteen months of operation.

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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 29, 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 39 weeks ended October 29, 2022 and October 30, 2021 is as follows:

Sales that are excluded from the calculation of comparable store net sales are referred to as non-comparable store sales and consist of sales from new stores open fifteen months or less and stores that are closed permanently or expected to be closed for more than 90 days.

At April 29, 2023, we operated stores in 48 states and the District of Columbia, as well as stores in five Canadian provinces.

The average size of stores opened during the 13 weeks ended April 29, 2023 was approximately 9,520 selling square feet for the Dollar Tree segment and 9,410 selling square feet for the Family Dollar segment.

A breakdown of store counts and square footage by segment for the 13 weeks ended April 29, 2023 and April 30, 2022 is as follows:

13 Weeks Ended

October 29, 2022 October 30, 2021

April 29, 2023 April 30, 2022

Dollar Tree Family Dollar Total Dollar Tree Family Dollar Total

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New stores 0.3 0.7 1.0 0.4 0.6 1.0

Re-bannered stores — 0.1 0.1 — — —

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

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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 29, 2022 was approximately 8,590 selling square feet for the Dollar Tree segment and 8,970 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 29, 2022, as compared with the preceding year, is as follows:

13 Weeks Ended October 29, 2022 39 Weeks Ended October 29, 2022

The percentage change in comparable store net sales for the 13 weeks ended April 29, 2023, as compared with the preceding year, is as follows:

13 Weeks Ended April 29, 2023

Sales Growth Change in

Customer Traffic Change in

Average Ticket Sales Growth Change in

Customer Traffic Change in

Average Ticket

2 unchanged sentences

Family Dollar Segment 6.6 % 4.3 % 2.2 %

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

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

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

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

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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.

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 fourth quarter of fiscal 2022 compared with the fourth quarter 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 three quarters of fiscal 2022.

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

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

Because of the investments in new products, we expect Dollar Tree’s gross margin to be lower in the first half of fiscal 2023 compared to the prior year.

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 29, 2022, we have approximately 2,350 Dollar Tree Plus stores.

We began testing the Instacart online delivery service at Dollar Tree stores in the third quarter of fiscal 2021 and began rolling it out in the fourth quarter of fiscal 2021.

As of October 29, 2022, the Instacart platform covers more than 7,500 Dollar Tree stores.

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

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

As of April 29, 2023, we have approximately 2,915 Dollar Tree Plus stores.

In addition, we have added $3, $4 and $5 frozen and refrigerated product to 3,935 stores as of April 29, 2023.

Family Dollar Initiatives

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 to serve small towns across the country.

In March 2021, we announced the development of a new combination store format.

Combo Stores leverage the strengths of the Dollar Tree and Family Dollar brands under one roof to serve small towns across the country.

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

As of October 29, 2022, we operated approximately 700 Combo Stores.

We are also continuing to execute our store optimization programs.

As of April 29, 2023, we operated approximately 885 Combo Stores.

We are also continuing to implement our H2 initiative.

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.

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

As of October 29, 2022, we have approximately 4,300 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.

After a successful pilot program in 2020, we entered into a partnership with Instacart in February 2021, which covers more than 7,200 Family Dollar stores across the United States as of October 29, 2022.

In addition, we added adult beverage to more than 440 stores in the first three quarters of fiscal 2022.

As of April 29, 2023, we have approximately 4,610 H2 stores.

In addition, we are continuing to add adult beverage product to our stores.

As of April 29, 2023, there were more than 3,510 stores selling adult beverage products.

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

As of October 29, 2022, there were more than 3,180 stores selling adult beverage products.

Additional Considerations

The following trends or uncertainties have already impacted or could impact our business or results of operations during 2023 or in the future:

• Anticipated Expense Pressures .

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 continue to improve Family Dollar’s 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 continue to pressure gross margins in the fourth quarter 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, or the imposition of additional lockdowns in certain Chinese localities to address COVID-19 outbreaks, our ability to ship products from overseas on a timely basis has improved in the second and third quarters of fiscal 2022.

In the third quarter, this improvement led to an increase in inventory levels that exceeded the storage capacity of some of our distribution centers.

As a result, we arranged for temporary offsite warehouse storage facilities and incurred detention costs and incremental drayage costs that increased our cost of goods sold and is expected to do so for the fourth quarter.

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, diversions of shipments to other U.S.

ports, or other disruptions in our supply chain which could cause delays or otherwise 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 have experienced 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, 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 three quarters of fiscal 2022, import and domestic freight costs were higher compared to the first three quarters of fiscal 2021.

• 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, offering enhanced wages in select competitive markets, and paying tuition reimbursement.

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 2022.

• Build-out and C onstruction Costs and Delays.

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

In addition, we have experienced delays in new store openings due to limitations on the availability of certain fixtures and equipment and inspection, permitting and contractor delays.

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.

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 fiscal 2022, we have incurred costs related to the product recall, remediation efforts and asset impairment.

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

• Strategic Investments.

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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 29, October 30, Percentage

Change October 29, October 30, Percentage

(dollars in millions) 2022 2021 2022 2021

13 Weeks Ended

(dollars in millions) April 29, 2023 April 30, 2022 Percentage Change

Net sales $ 7,319.5 $ 6,900.1 6.1 %

Comparable store net sales change 4.8 % 4.4 %

on a constant currency basis 6.5 % 1.6 % 5.4 % 0.4 %

The increase in net sales in the 13 weeks ended October 29, 2022 was a result of sales of $183.2 million at new stores and comparable store net sales increases in the Dollar Tree and Family Dollar segments.

Enterprise comparable store net sales increased 6.5% on a constant currency basis in the 13 weeks ended October 29, 2022, as a result of a 10.0% increase in average ticket, partially offset by a 3.2% decrease in customer traffic.

Comparable store net sales increased the same 6.5% when including the impact of Canadian currency fluctuations.

On a constant currency basis, comparable store net sales increased 8.6% in the Dollar Tree segment and increased 4.1% in the Family Dollar segment.

The increase in net sales in the 39 weeks ended October 29, 2022 was a result of sales of $547.5 million at new stores and comparable store net sales increases in the Dollar Tree and Family Dollar segments.

Enterprise comparable store net sales increased 5.4% on a constant currency basis in the 39 weeks ended October 29, 2022, as a result of a 9.2% increase in average ticket, partially offset by a 3.5% decrease in customer traffic.

Comparable store net sales increased 5.3% when including the impact of Canadian currency fluctuations.

On a constant currency basis, comparable store net sales increased 9.2% in the Dollar Tree segment and increased 1.2% in the Family Dollar segment.

13 Weeks Ended 39 Weeks Ended

October 29, October 30, Percentage

Change October 29, October 30, Percentage

(dollars in millions) 2022 2021 2022 2021

The increase in net sales in the 13 weeks ended April 29, 2023 was a result of the comparable store net sales increases in the Dollar Tree and Family Dollar segments and net sales of $241.2 million at non-comparable stores.

Enterprise comparable store net sales increased 4.8% in the 13 weeks ended April 29, 2023, as a result of a 5.0% increase in customer traffic, partially offset by a 0.2% decrease in average ticket.

Comparable store net sales increased 6.6% in the Family Dollar segment and increased 3.4% in the Dollar Tree segment.

13 Weeks Ended

(dollars in millions) April 29, 2023 April 30, 2022 Percentage Change

Gross profit $ 2,230.4 $ 2,340.5 (4.7) %

Gross profit margin 30.5 % 33.9 % (3.4) %

The increase in gross profit margin in the 13 weeks ended October 29, 2022 was a result of the net of the following:

• Merchandise cost, which includes freight, decreased 285 basis points resulting primarily from higher initial mark-on and lower freight costs, partially offset by increased sales of lower margin consumable merchandise.

• Occupancy costs decreased 40 basis points due to leverage from the comparable store net sales increase.

• Distribution costs decreased 15 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.

• Markdown costs increased 50 basis points primarily due to higher promotional and clearance markdowns on the Family Dollar segment and higher dated product markdowns on the Dollar Tree segment.

• Shrink costs increased 60 basis points in the current year quarter resulting from unfavorable inventory results in relation to accruals.

The increase in gross profit margin in the 39 weeks ended October 29, 2022 was a result of the net of the following:

• Merchandise cost, which includes freight, decreased 300 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.

The decrease in gross profit margin in the 13 weeks ended April 29, 2023 was a result of the net of the following:

• Merchandise cost, which includes freight, increased 280 basis points resulting from lower initial mark-on due to the prior year benefiting from the $1.25 rollout whereas the current year reflects product value re-investments at Dollar Tree and cost increases as well as higher sales of lower margin consumable merchandise, partially offset by lower freight costs.

• Shrink costs increased 60 basis points in the current year resulting from unfavorable physical inventory results.

• Distribution costs increased 55 basis points due to higher maintenance and compliance costs and higher hourly wages as well as the prior year including higher capitalized amounts resulting from higher inventory levels.

• Markdown costs decreased 25 basis points due to the prior year including higher clearance markdowns resulting from a transition to a higher value assortment at the $1.25 price point on the Dollar Tree segment and shipping delays of seasonal merchandise and slow moving inventory items on the Family Dollar segment.

Offsetting these decreases, in the current year, we experienced higher seasonal markdowns on the Dollar Tree segment and higher promotional markdowns on the Family Dollar segment.

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

• 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.

• Shrink costs increased 30 basis points in the current year resulting from unfavorable inventory results in relation to accruals.

• 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 39 Weeks Ended

October 29, October 30, Percentage

Change October 29, October 30, Percentage

(dollars in millions) 2022 2021 2022 2021

13 Weeks Ended

(dollars in millions) April 29, 2023 April 30, 2022 Percentage Change

Selling, general and administrative

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expense rate 24.8 % 23.3 % 1.5 %

The increase in the selling, general and administrative expense rate in the 13 weeks ended October 29, 2022 was the result of the following:

• Other selling, general and administrative expenses increased 75 basis points primarily due to higher legal fees and consulting fees as well as inflationary pressure across several expense categories.

The prior year quarter also included a benefit associated with the settlement of a contractual dispute.

• Store facility costs increased 60 basis points primarily due to an increase in repairs and maintenance expenses as we focus on store conditions for our customers and associates and higher utility costs.

• Payroll expenses increased 40 basis points primarily due to minimum wage increases and other investments in store payroll and higher stock and incentive compensation expenses, partially offset by leverage from the comparable store net sales increase.

• 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.

The increase in the selling, general and administrative expense rate in the 39 weeks ended October 29, 2022 was the result of the following:

• Other selling, general and administrative expenses increased 65 basis points primarily due to higher legal fees, including costs related to the reconstitution of the Board of Directors, long-lived asset impairments at the Family Dollar West Memphis, Arkansas distribution center and inflationary pressure across several expense categories.

• Store facility costs increased 35 basis points primarily due to an increase in repairs and maintenance expenses as we focus on store conditions for our customers and associates, higher utility costs and costs associated with the removal of product from certain Family Dollar stores in connection with the voluntary retail-level product recall.

• Payroll expenses increased 20 basis points primarily due to minimum wage increases and other investments in store payroll and higher stock and incentive compensation expenses, partially offset 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.

The increase in the selling, general and administrative expense rate in the 13 weeks ended April 29, 2023 was the result of the following:

• Other selling, general and administrative expenses increased 70 basis points primarily due to increases in legal costs, professional fees, and advertising costs, partially offset by higher costs in the prior year in connection with long-lived asset impairments at the Family Dollar West Memphis, Arkansas distribution center.

The increase in legal costs was primarily due to a $30.0 million accrual for DC 202-related legal matters, partially offset by legal fees in the prior year related to the reconstitution of the Board of Directors.

• Payroll expenses increased 60 basis points primarily due to wage investments and minimum wage increases in store payroll, partially offset by lower incentive and stock compensation expenses and leverage from the comparable store net sales increase.

• Store facility costs increased 20 basis points primarily due to higher repairs and maintenance expenses as we focus on store conditions for our customers and associates, partially offset by leverage from the comparable store net sales increase.

• Depreciation and amortization expense was unchanged as a percentage of total revenue, as leverage from the comparable store net sales increase offset capital expenditures related to store renovations and improvements.

Operating Income

13 Weeks Ended 39 Weeks Ended

October 29, October 30, Percentage

Change October 29, October 30, Percentage

(dollars in millions) 2022 2021 2022 2021

13 Weeks Ended

(dollars in millions) April 29, 2023 April 30, 2022 Percentage Change

Operating income $ 419.7 $ 731.5 (42.6) %

Operating income margin 5.7 % 10.6 % (4.9) %

Operating income margin increased to 5.5% for the 13 weeks ended October 29, 2022 compared to 4.8% 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 7.9% for the 39 weeks ended October 29, 2022 compared to 6.4% 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 decreased to 5.7% for the 13 weeks ended April 29, 2023 compared to 10.6% for the same period last year, resulting from the decrease in gross profit margin and the increase in the selling, general and administrative expense rate, as described above.

Interest Expense, Net

13 Weeks Ended 39 Weeks Ended

October 29, October 30, Percentage

Change October 29, October 30, Percentage

(dollars in millions) 2022 2021 2022 2021

13 Weeks Ended

(dollars in millions) April 29, 2023 April 30, 2022 Percentage Change

Interest expense, net $ 25.9 $ 34.0 (23.8) %

Interest expense, net decreased $0.7 million in the 13 weeks ended October 29, 2022 compared to the same period last year, resulting from higher interest income on investments and capitalized interest on capital expenditures, partially offset by interest expense on credit facility borrowings.

Interest expense, net decreased $2.1 million in the 39 weeks ended October 29, 2022 compared to the same period last year, resulting from higher interest income on investments and capitalized interest on capital expenditures, partially offset by interest expense on credit facility borrowings.

Interest expense, net decreased $8.1 million in the 13 weeks ended April 29, 2023 compared to the same period last year, resulting from higher interest income on investments.

Provision for Income Taxes

13 Weeks Ended 39 Weeks Ended

October 29, October 30, Percentage

Change October 29, October 30, Percentage

(dollars in millions) 2022 2021 2022 2021

13 Weeks Ended

(dollars in millions) April 29, 2023 April 30, 2022 Percentage Change

Provision for income taxes $ 94.7 $ 161.1 (41.2) %

Effective tax rate 24.1 % 23.1 % 1.0 %

The effective tax rate was 23.4% for the 13 weeks ended October 29, 2022 compared to 21.7% for the comparable prior year period, resulting from higher net state taxes, higher non-deductible executive compensation 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 39 weeks ended October 29, 2022 compared to 22.9% 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.

The effective tax rate was 24.1% for the 13 weeks ended April 29, 2023 compared to 23.1% for the comparable prior year period, resulting from lower stock-based compensation deductions and higher non-deductible expenses, offset partially by higher Work Opportunity Tax credits as a percentage of pre-tax income in the current year.

Segment Information

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

13 Weeks Ended 39 Weeks Ended

October 29, October 30, Percentage

Change October 29, October 30, Percentage

(dollars in millions) 2022 2021 2022 2021

13 Weeks Ended

(dollars in millions) April 29, 2023 April 30, 2022 Percentage Change

Net sales $ 3,931.7 $ 3,781.8 4.0 %

3 unchanged sentences

Operating income margin 13.6 % 20.2 % (6.6) %

Net sales for the Dollar Tree segment increased $338.7 million, or 9.9%, for the 13 weeks ended October 29, 2022 compared to the same period last year.

The increase was due to an increase in comparable store net sales of 8.6% and $81.8 million of new store sales.

Average ticket increased 14.6% and customer traffic decreased 5.2%.

The 13 weeks ended October 29, 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 third quarter of fiscal 2022.

Net sales for the Dollar Tree segment increased $1,106.0 million, or 11.1%, for the 39 weeks ended October 29, 2022 compared to the same period last year.

The increase was due to an increase in comparable store net sales of 9.2% and $284.7 million of new store sales.

Average ticket increased 14.8% and customer traffic decreased 4.9%.

The 39 weeks ended October 29, 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 three quarters of fiscal 2022.

Gross profit margin for the Dollar Tree segment increased to 35.4% for the 13 weeks ended October 29, 2022 compared to 30.2% for the same period last year as a result of the net of the following:

• Merchandise cost, which includes freight, decreased 485 basis points primarily due to higher initial mark-on and lower freight costs, partially offset by higher sales of lower margin consumable merchandise.

• Occupancy costs decreased 60 basis points primarily due to leverage from the comparable store net sales increase.

• 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.

• Markdown costs increased 10 basis points resulting primarily from markdowns for clearance items as we move to a higher value assortment at the $1.25 price point.

• Shrink costs increased 35 basis points in the current year resulting from unfavorable inventory results in relation to accruals.

Gross profit margin for the Dollar Tree segment increased to 37.8% for the 39 weeks ended October 29, 2022 compared to 32.1% for the same period last year as a result of the net of the following:

• Merchandise cost, which includes freight, decreased 515 basis points primarily due to higher initial mark-on, 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 30 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.

• Markdown costs increased 15 basis points resulting primarily from markdowns for clearance items as we move to a higher value assortment at the $1.25 price point.

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

Operating income margin for the Dollar Tree segment increased to 13.3% for the 13 weeks ended October 29, 2022 from 8.5% for the same period last year as a result of the gross profit margin increase noted above, partially offset by an increase in the selling, general and administrative expense rate.

The selling, general and administrative expense rate increased to 22.1% in the 13 weeks ended October 29, 2022 compared to 21.7% for the same period last year as a result of the net of the following:

• Other selling, general and administrative expenses increased 65 basis points primarily due to the benefit in the prior year quarter associated with the settlement of a contractual dispute and the realization of certain tax credits as well as inflationary pressure across several expense categories in the current year quarter.

• Store facility costs increased 45 basis points primarily due to an increase in repairs and maintenance expenses as we focus on store conditions for our customers and associates and higher utility costs.

• 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.

• Payroll expenses decreased 70 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.

Operating income margin for the Dollar Tree segment increased to 16.3% for the 39 weeks ended October 29, 2022 from 10.2% 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 21.5% in the 39 weeks ended October 29, 2022 compared to 21.9% for the same period last year as a result of the net of the following:

• Payroll expenses decreased 85 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.

• 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.

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

• Other selling, general and administrative expenses increased 35 basis points primarily due to the benefit in the prior year associated with the settlement of a contractual dispute and the realization of certain tax credits as well as inflationary pressure across several expense categories in the current year.

Net sales for the Dollar Tree segment increased $149.9 million, or 4.0%, for the 13 weeks ended April 29, 2023 compared to the same period last year.

The increase was due to an increase in comparable store net sales of 3.4% and $90.7 million of non-comparable store sales.

Customer traffic increased 5.5% and average ticket decreased 2.1%.

Gross profit margin for the Dollar Tree segment decreased to 35.3% for the 13 weeks ended April 29, 2023 compared to 40.6% for the same period last year as a result of the net of the following:

• Merchandise cost, which includes freight, increased 420 basis points due to the prior year benefiting from the $1.25 rollout whereas the current year reflects lower initial mark-on resulting from product value re-investments and cost increases as well as higher sales of lower margin consumable merchandise, partially offset by lower freight costs.

• Distribution costs increased 80 basis points due to higher maintenance and compliance costs and higher hourly wages as well as the prior year including higher capitalized amounts resulting from higher inventory levels.

• Shrink costs increased 55 basis points in the current year resulting from unfavorable physical inventory results.

• Markdown costs decreased 20 basis points resulting from higher clearance markdowns in the prior year due to a transition to a higher value assortment at the $1.25 price point, partially offset by higher seasonal markdowns in the current year.

Operating income margin for the Dollar Tree segment decreased to 13.6% for the 13 weeks ended April 29, 2023 from 20.2% for the same period last year as a result of 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 increased to 21.7% in the 13 weeks ended April 29, 2023 compared to 20.4% for the same period last year as a result of the following:

• Payroll expenses increased 75 basis points primarily due to wage investments and minimum wage increases in store payroll.

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

• Depreciation and amortization expense increased 5 basis points primarily due to capital expenditures related to store renovations and improvements.

Family Dollar

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

13 Weeks Ended 39 Weeks Ended

October 29, October 30, Percentage

Change October 29, October 30, Percentage

(dollars in millions) 2022 2021 2022 2021

13 Weeks Ended

(dollars in millions) April 29, 2023 April 30, 2022 Percentage Change

Net sales $ 3,387.8 $ 3,118.3 8.6 %

1 unchanged sentence

Gross profit margin 24.8 % 25.8 % (1.0) %

Operating income (loss) $ (18.4) $ 88.6 (120.8) % $ 126.1 $ 456.3 (72.4) %

Operating margin (0.6) % 3.0 % (3.6) % 1.3 % 4.9 % (3.6) %

Net sales for the Family Dollar segment increased $182.5 million, or 6.1%, for the 13 weeks ended October 29, 2022 compared to the same period last year.

The increase was due to a comparable store net sales increase of 4.1% and $101.4 million of new store sales.

For the 13 weeks ended October 29, 2022, average ticket increased 4.1% and customer traffic increased 0.1%.

Net sales for the Family Dollar segment increased $263.6 million, or 2.9%, for the 39 weeks ended October 29, 2022 compared to the same period last year.

The increase was due to a comparable store net sales increase of 1.2% and $262.8 million of new store sales.

For the 39 weeks ended October 29, 2022, average ticket increased 2.7% and customer traffic declined 1.5%.

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 increased 1.7 % when excluding the effect of the store closures.

Gross profit margin for the Family Dollar segment decreased to 23.4% for the 13 weeks ended October 29, 2022 compared to 24.4% for the same period last year.

Operating income $ 8.8 $ 89.5 (90.2) %

Operating income margin 0.3 % 2.9 % (2.6) %

Net sales for the Family Dollar segment increased $269.5 million, or 8.6%, for the 13 weeks ended April 29, 2023 compared to the same period last year.

The increase was due to a comparable store net sales increase of 6.6% and $ 150.5 million of non-comparable store sales.

For the 13 weeks ended April 29, 2023, customer traffic increased 4.3% and average ticket increased 2.2%.

Gross profit margin for the Family Dollar segment decreased to 24.8% for the 13 weeks ended April 29, 2023 compared to 25.8% for the same period last year.

The decrease is due to the net of the following:

• Markdown costs increased 105 basis points primarily due to higher promotional and clearance markdowns.

• Shrink costs increased 85 basis points in the current year quarter resulting from unfavorable inventory results in relation to accruals.

• Distribution costs decreased 15 basis points primarily due to the 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.

• Merchandise cost, which includes freight, increased 85 basis points resulting from lower initial mark-on and higher sales of lower margin consumable merchandise, partially offset by lower freight costs.

• Shrink costs increased 60 basis points in the current year resulting from unfavorable physical inventory results.

• Distribution costs increased 20 basis points primarily due to higher maintenance and compliance costs as well as the prior year including higher capitalized amounts resulting from higher inventory levels, partially offset by leverage from the comparable store net sales increase in the current year.

• Markdown costs decreased 30 basis points due to higher clearance markdowns in the prior year as a result of shipping delays of seasonal merchandise and slow moving inventory items, partially offset by higher promotional markdowns in the current year.

• Occupancy costs decreased 40 basis points primarily due to the leverage from the comparable store net sales increase.

• Merchandise cost, which includes freight, decreased 45 basis points primarily due to higher initial mark-on.

Gross profit margin for the Family Dollar segment decreased to 24.6% for the 39 weeks ended October 29, 2022 compared to 25.8% for the same period last year.

The decrease is due to the net of the following:

• Markdown costs increased 85 basis points primarily due to higher promotional and clearance markdowns.

• Shrink costs increased 50 basis points in the current year resulting from unfavorable inventory results in relation to accruals.

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

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

Operating margin for the Family Dollar segment decreased to (0.6)% for the 13 weeks ended October 29, 2022 from 3.0% 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 increased to 24.0% in the 13 weeks ended October 29, 2022 compared to 21.4% for the same period last year as a result of the following:

• Payroll expenses increased 95 basis points primarily due to minimum wage increases and other investments in store payroll.

• Store facility costs increased 75 basis points primarily due to an increase in repairs and maintenance expenses as we focus on store conditions for our customers and associates and higher utility costs.

• Other selling, general and administrative expenses increased 70 basis points primarily due to higher legal fees and inflationary pressure across several expense categories.

Operating margin for the Family Dollar segment decreased to 1.3% for the 39 weeks ended October 29, 2022 from 4.9% 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 increased to 23.3% in the 39 weeks ended October 29, 2022 compared to 20.9% for the same period last year as a result of the following:

• Payroll expenses increased 85 basis points primarily due to minimum wage increases and other investments in store payroll.

• Other selling, general and administrative expenses increased 70 basis points primarily due to long-lived asset impairments at the West Memphis, Arkansas distribution center, higher legal fees and inflationary pressure across several expense categories.

• Store facility costs increased 65 basis points primarily due to an increase in repairs and maintenance expenses as we focus on store conditions for our customers and associates, higher utility costs and costs associated with the removal of product from certain Family Dollar stores in connection with the voluntary retail-level product recall.

• Depreciation and amortization expense increased 25 basis points primarily due to capital expenditures related to store renovations and improvements.

Operating income margin for the Family Dollar segment decreased to 0.3% for the 13 weeks ended April 29, 2023 from 2.9% 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 increased to 24.6% in the 13 weeks ended April 29, 2023 compared to 23.0% for the same period last year as a result of the net of the following:

• Other selling, general and administrative expenses increased 85 basis points primarily due to increases in legal costs, professional fees and advertising costs, partially offset by higher costs in the prior year in connection with long-lived asset impairments at the West Memphis, Arkansas distribution center.

The increase in legal costs was primarily due to a $30.0 million accrual for DC 202-related legal matters in the current year.

• Payroll expenses increased 75 basis points primarily due to wage investments and minimum wage increases in store payroll, partially offset by 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, partially offset by 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 29, 2022 and October 30, 2021:

The following table compares cash flow-related information for the 13 weeks ended April 29, 2023 and April 30, 2022:

13 Weeks Ended

October 29, October 30,

(in millions) 2022 2021

(in millions) April 29, 2023 April 30, 2022

Net cash provided by (used in):

2 unchanged sentences

Financing activities (167.6) (49.1)

Net cash provided by operating activities decreased $284.6 million primarily due to higher inventory levels and lower accounts payable, partially offset by higher current year earnings, net of non-cash items and higher accrued liability balances.

Net cash used in investing activities increased $179.6 million primarily due to higher capital expenditures in the current year.

Net cash used in financing activities decreased $643.8 million due to lower stock repurchases and net proceeds from borrowings under the Revolving Credit Facility in the current year.

At October 29, 2022, our long-term borrowings were $3.45 billion.

Additionally, we had $350.0 million of loans outstanding under our $1.5 billion Revolving Credit Facility and $1.1 billion of availability, net of $44.3 million of outstanding standby letters of credit.

We also have $425.0 million in trade letters of credit with various financial institutions, under which $178.0 million was committed to letters of credit issued for routine purchases of imported merchandise as of October 29, 2022.

We repurchased 4,613,696 and 9,156,898 shares of common stock on the open market during the 39 weeks ended October 29, 2022 and October 30, 2021, respectively, for $647.5 million and $950.0 million, respectively.

At October 29, 2022, we had $1.85 billion remaining under our Board repurchase authorization.

Net cash provided by operating activities increased $213.5 million primarily due to lower inventory levels, partially offset by lower accounts payable, lower current year earnings, net of non-cash items and lower accrued liability balances.

Net cash used in investing activities increased $96.4 million due to higher capital expenditures.

Net cash used in financing activities increased $118.5 million due to higher stock repurchases.

At April 29, 2023, 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 $4.3 million.

We also have $425.0 million in trade letters of credit with various financial institutions, under which $178.4 million was committed to letters of credit issued for routine purchases of imported merchandise as of April 29, 2023.

We repurchased 1,025,000 and 89,779 shares of common stock on the open market during the 13 weeks ended April 29, 2023 and April 30, 2022, respectively, for $151.1 million and $14.2 million, respectively.

Of the shares repurchased during the 13 weeks ended April 29, 2023, $7.7 million had not settled as of April 29, 2023 and this amount was accrued in the accompanying unaudited condensed consolidated balance sheet as of April 29, 2023.

At April 29, 2023, we had $1.7 billion remaining under our 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