What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-24 compared with 2023-05-25 · 171 added, 106 removed, 136 unchanged (67% of the section changed)

7 unchanged sentences

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

• Our merchandising plans and initiatives and related impacts, including those regarding product assortment, merchandisable space and store layout, cooler and freezer expansions, private label products and planogram and category resets in the Family Dollar segment, and multi-price assortments in the Dollar Tree segment;

• Our plans to add, renovate and remodel stores, including our plans relating to new store concepts such as H2.5, rural and XSB formats for Family Dollar stores, and Dollar Tree Plus formats, and our expectations regarding store standards and operations, efficiency initiatives, selling square footage and the performance of those formats;

• Our expectations regarding the implementation and impact of investments in supply chain, distribution facilities, store delivery and equipment, and technology initiatives, store appearance, wage investments and other workforce investments and goals;

• 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;

Food and Drug Administration and Department of Justice matters), and the availability of indemnification or insurance with respect to such matters;

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

• Our expectations regarding our commercial paper program, including our expected use of proceeds and repayment sources;

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

9 unchanged sentences

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

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

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

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

• We may not be successful in implementing or in anticipating the impact of important strategic initiatives, and our plans for implementing such initiatives may be altered or delayed due to various factors, which may have an adverse impact on our business and financial results.

• We may not be successful in implementing or in anticipating the impact of important strategic initiatives, we may fail to realize our desired sales, operational efficiencies or other anticipated benefits of those initiatives, and our plans for implementing such initiatives may be altered or delayed due to various factors, any of which may have an adverse impact on our business and financial results.

• Customers may not accept or respond to changes in our product assortment, store layouts and formats, and other results of our strategic initiatives.

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

17 unchanged sentences

We are a leading operator of more than 16,400 retail discount stores and we conduct our operations in two reporting segments.

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

Our Dollar Tree segment is the leading operator of discount variety stores offering merchandise predominantly at the fixed price point of $1.25, with additional offerings at $3, $4 and $5 price points.

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

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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.

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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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:

At July 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 26 weeks ended July 29, 2023 was approximately 9,310 selling square feet for the Dollar Tree segment and 9,515 selling square feet for the Family Dollar segment.

A breakdown of store counts and square footage by segment for the 26 weeks ended July 29, 2023 and July 30, 2022 is as follows:

26 Weeks Ended

April 29, 2023 April 30, 2022

July 29, 2023 July 30, 2022

Dollar Tree Family Dollar Total Dollar Tree Family Dollar Total

8 unchanged sentences

New stores 0.7 1.4 2.1 0.6 1.5 2.1

Re-bannered stores — — — — 0.1 0.1

Closings (0.3) (0.3) (0.6) (0.2) (0.4) (0.6)

2 unchanged sentences

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

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

The percentage change in comparable store net sales for the 13 and 26 weeks ended July 29, 2023, as compared with the preceding year, is as follows:

13 Weeks Ended July 29, 2023

26 Weeks Ended July 29, 2023

Sales Growth Change in

Customer Traffic Change in

Average Ticket Sales Growth Change in

Customer Traffic Change in

Average Ticket

3 unchanged sentences

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

Dollar Tree Initiatives

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.

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 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.

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 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.

These stores have higher customer traffic and provide a higher average comparable store net sales lift, when compared to non-renovated stores, in the first year following renovation.

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

As of 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.

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:

• 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 these investments will relate to four key areas of our business:

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

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

Net sales per selling square foot is calculated based on total net sales for the preceding 12 months as of the end of the reporting period divided by the average selling square footage during the period.

Selling square footage excludes the storage, receiving and office space that generally occupies approximately 20% of the total square footage of our stores.

We believe that net sales per selling square foot more accurately depicts the productivity and operating performance of our stores as it isolates that portion of our footprint that is dedicated to selling merchandise.

Net sales per selling square foot is calculated for stores open throughout the period presented.

Net sales per selling square foot for the 52 weeks ended July 29, 2023 and July 30, 2022 is as follows:

52 Weeks Ended

July 29, 2023 July 30, 2022

Dollar Tree Family Dollar Total Dollar Tree Family Dollar Total

Net sales per selling square foot $225 $218 $222 $212 $210 $211

Strategic Initiatives

In recent years, we have pursued and executed a number of strategic initiatives across the Dollar Tree and Family Dollar banners, including the $1.25 price point at Dollar Tree, implementation of Dollar Tree Plus , increased frozen and refrigerated products in our stores, and implementation of new store formats at Family Dollar.

During our 2023 Investor Conference on June 21, 2023, we outlined updated strategies and plans to build upon these initiatives and drive productive sales growth, improve operating efficiency, invest in technology, and expand our culture of service to our associates.

These initiatives include, among others, the following.

Dollar Tree Merchandising.

We completed our $1.25 price point initiative with the rollout to all Dollar Tree stores during the first quarter of fiscal 2022.

This allowed us to re-introduce products and expand our brand assortment at the new $1.25 price point to provide greater value for our customers and increase customer traffic and store productivity.

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

As of July 29, 2023, we have approximately 3,630 Dollar Tree Plus stores.

We are planning the continued expansion of our multi-price product assortment, both through the addition of $3, $4 and $5 frozen and refrigerated product, as well as other consumable and discretionary product.

As of July 29, 2023, approximately 5,580 stores had $3, $4 and $5 frozen and refrigerated products.

Within these stores, we also plan to transition some of our existing $1.25 freezer and cooler doors to multi-price products.

We are currently taking actions to improve operating efficiencies and prepare for expanded multi-price products within our stores, including raising shelf heights, implementing space productivity, and rightsizing assortments.

Family Dollar Merchandising.

During the past several years, we have been implementing store design initiatives at Family Dollar with significantly improved merchandise offerings and establishing a minimum number of cooler doors.

We are building upon these formats to further tailor space and assortment to local demographics with emerging formats including H2.5, our new primary store format (generally 6,700 to 8,700 square feet) with optimized layout and expanded frozen and refrigerated doors;

rural stores, which are an evolution of our Combo format, generally contain more square footage (8,700+ square feet) and have assortments that may include Dollar Tree product;

and XSB (Extra Small Box), which generally contain less square footage (less than 6,700 square feet) and add elements of H2.5 optimized to our smaller stores, particularly in urban markets.

As of July 29, 2023, we have approximately 830 H2.5 stores, and in the quarter we opened or converted 90 stores into our rural Combo format.

Actions taken in recent months have improved Family Dollar’s price position relative to competition, which we believe has positively impacted customer traffic and average ticket.

Building on this momentum, we plan to improve our product assortment across all of Family Dollar’s formats by expanding our SKUs, continuing to add cooler doors, increasing our standard shelf profile from 72 inches to 78 inches, and implementing planogram and category resets.

We continue to introduce new private brands at Family Dollar, convert control brands to private brands and align our “Family” brand message across key categories.

Our Workforce & Our Workplace.

Across both of our banners, we are investing in our talent, including initiatives to provide competitive pay and benefits, enhanced training, and attractive career opportunities to deliver an enhanced associate experience, reduce turnover, and improve our store standards and efficiencies and ultimately the customer experience.

Additional initiatives include accelerating new store openings and expanding renovations and other projects to optimize and modernize our stores.

We are continuing to implement our G.O.L.D.

(Grand Opening Look Daily) initiative to improve store appearance, deliver consistent experiences across all stores, and drive positive sales trends.

Supply Chain Optimization .

Our supply chain initiatives include enhancing our distribution and transportation network to support store growth and merchandising programs, including investments in building a Dollar Tree Fleet Ownership Program, modernizing the existing Family Dollar fleet, transportation management systems, a new co-bannered distribution center to increase capacity and

improve efficiency, and a new rotacart delivery process that is expected to, among other things, streamline the truck unloading and store delivery process, improve associate and driver utilization and improve operational efficiencies.

Technology Investment.

Over the next several years, we are planning significant investment in our technology, including next-gen applications, data and analytics capabilities, and enhanced user experience across our business, including our store network and point-of-sale, merchandising and supply chain.

We believe these improvements can promote operational efficiencies and deliver an elevated customer experience.

Results of Operations

2 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

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

13 Weeks Ended 26 Weeks Ended

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

Net sales $ 7,320.1 $ 6,765.3 8.2 % $ 14,639.6 $ 13,665.4 7.1 %

Comparable store net sales change 6.9 % 4.8 % 5.9 % 4.6 %

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.

The increase in net sales in the 13 weeks ended July 29, 2023 was a result of the comparable store net sales increases in the Dollar Tree and Family Dollar segments and net sales of $233.1 million at non-comparable stores.

Enterprise comparable store net sales increased 6.9% in the 13 weeks ended July 29, 2023, as a result of a 7.1% increase in customer traffic, partially offset by a 0.2% decrease in average ticket.

Comparable store net sales increased 7.8% in the Dollar Tree segment and increased 5.8% in the Family Dollar segment.

The increase in net sales in the 26 weeks ended July 29, 2023 was a result of the comparable store net sales increases in the Dollar Tree and Family Dollar segments and net sales of $495.0 million at non-comparable stores.

Enterprise comparable store net sales increased 5.9% in the 26 weeks ended July 29, 2023, as a result of a 6.1% increase in customer traffic, partially offset by a 0.2% decrease in average ticket.

Comparable store net sales increased 6.2% in the Family Dollar segment and increased 5.6% in the Dollar Tree segment.

13 Weeks Ended

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

13 Weeks Ended 26 Weeks Ended

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

Gross profit $ 2,134.7 $ 2,124.4 0.5 % $ 4,365.1 $ 4,464.9 (2.2) %

Gross profit margin 29.2 % 31.4 % (2.2) % 29.8 % 32.7 % (2.9) %

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

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

• Merchandise cost, which includes freight, increased 145 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.

• Distribution costs increased 40 basis points due to a higher amount of costs capitalized in the prior year quarter resulting from increasing inventory levels in the prior year quarter and higher distribution center payroll costs in the current year quarter, primarily on the Dollar Tree segment.

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

The decrease in gross profit margin in the 26 weeks ended July 29, 2023 was a result of the net of the following:

• Merchandise cost, which includes freight, increased 215 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 50 basis points due to a higher amount of costs capitalized in the prior year resulting from increasing inventory levels on both the Dollar Tree and Family Dollar segments in the prior year and higher distribution center payroll costs in the current year on the Dollar Tree segment.

• Markdown costs decreased 10 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 on the Family Dollar segment, partially offset by higher seasonal markdowns on the Dollar Tree segment in the current year.

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

Selling, General and Administrative Expenses

13 Weeks Ended

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

13 Weeks Ended 26 Weeks Ended

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

Selling, general and administrative

2 unchanged sentences

expense rate 25.3 % 24.0 % 1.3 % 25.0 % 23.7 % 1.3 %

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 the selling, general and administrative expense rate in the 13 weeks ended July 29, 2023 was the result of the net of the following:

• Payroll expenses increased 65 basis points primarily due to wage investments and minimum wage increases in store payroll, and higher incentive compensation expense, partially offset by lower stock compensation expense and leverage from the comparable store net sales increase.

• Other selling, general and administrative expenses increased 45 basis points primarily due to unfavorable development of general liability insurance claims, increases in professional fees, and higher information technology system costs.

• Store facility costs increased 25 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, partially offset by leverage from the comparable store net sales increase.

• 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.

The increase in the selling, general and administrative expense rate in the 26 weeks ended July 29, 2023 was the result of the net of the following:

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

• Other selling, general and administrative expenses increased 60 basis points primarily due to increases in professional fees and legal 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

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

13 Weeks Ended 26 Weeks Ended

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

Operating income $ 287.8 $ 505.4 (43.1) % $ 707.5 $ 1,236.9 (42.8) %

Operating income margin 3.9 % 7.5 % (3.6) % 4.8 % 9.0 % (4.2) %

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.

Operating income margin decreased to 3.9% for the 13 weeks ended July 29, 2023 compared to 7.5% 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.

Operating income margin decreased to 4.8% for the 26 weeks ended July 29, 2023 compared to 9.0% 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

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

13 Weeks Ended 26 Weeks Ended

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

Interest expense, net $ 24.2 $ 30.6 (20.9) % $ 50.1 $ 64.6 (22.4) %

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.

Interest expense, net decreased $6.4 million in the 13 weeks ended July 29, 2023 compared to the same period last year, resulting from higher interest income on investments.

Interest expense, net decreased $14.5 million in the 26 weeks ended July 29, 2023 compared to the same period last year, resulting from higher interest income on investments.

Provision for Income Taxes

13 Weeks Ended

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

13 Weeks Ended 26 Weeks Ended

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

Provision for income taxes $ 63.3 $ 114.8 (44.9) % $ 158.0 $ 275.9 (42.7) %

Effective tax rate 24.0 % 24.2 % (0.2) % 24.0 % 23.5 % 0.5 %

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.

The effective tax rate was 24.0% for the 13 weeks ended July 29, 2023 compared to 24.2% for the comparable prior year period, resulting from higher Work Opportunity Tax Credits as a percentage of pre-tax income in the current year, offset partially by higher non-deductible expenses.

The effective tax rate was 24.0% for the 26 weeks ended July 29, 2023 compared to 23.5% 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

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

13 Weeks Ended 26 Weeks Ended

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

Net sales $ 3,873.4 $ 3,571.1 8.5 % $ 7,805.1 $ 7,352.9 6.1 %

3 unchanged sentences

Operating income margin 10.3 % 15.4 % (5.1) % 12.0 % 17.9 % (5.9) %

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.

Net sales for the Dollar Tree segment increased $302.3 million, or 8.5%, for the 13 weeks ended July 29, 2023 compared to the same period last year.

The increase was due to an increase in comparable store net sales of 7.8% and $78.4 million of non-comparable store sales.

Customer traffic increased 9.6% and average ticket decreased 1.6%.

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:

Net sales for the Dollar Tree segment increased $452.2 million, or 6.1%, for the 26 weeks ended July 29, 2023 compared to the same period last year.

The increase was due to an increase in comparable store net sales of 5.6% and $177.8 million of non-comparable store sales.

Customer traffic increased 7.7% and average ticket decreased 1.9%.

Gross profit margin for the Dollar Tree segment decreased to 33.4% for the 13 weeks ended July 29, 2023 compared to 37.4% for the same period last year as a result of the net of the following:

• Merchandise cost, which includes freight, increased 275 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.

• Distribution costs increased 75 basis points due to a higher amount of costs capitalized in the prior year quarter resulting from increasing inventory levels in the prior year quarter and higher distribution center payroll costs in the current year quarter.

• Shrink costs increased 75 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.

• Occupancy costs decreased 35 basis points due to leverage from the comparable store net sales increase.

Gross profit margin for the Dollar Tree segment decreased to 34.4% for the 26 weeks ended July 29, 2023 compared to 39.0% for the same period last year as a result of the net of the following:

• Merchandise cost, which includes freight, increased 350 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 a higher amount of costs capitalized in the prior year resulting from increasing inventory levels in the prior year and higher distribution center payroll costs in the current year.

• Shrink costs increased 65 basis points in the current year resulting from unfavorable physical inventory results.

• Markdown costs decreased 10 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.

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

Operating income margin for the Dollar Tree segment decreased to 10.3% for the 13 weeks ended July 29, 2023 from 15.4% 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 23.1% in the 13 weeks ended July 29, 2023 compared to 22.0% for the same period last year as a result of the net of the following:

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

• Store facility costs increased 40 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, partially offset by leverage from the comparable store net sales increase.

• Other selling, general and administrative expenses increased 20 basis points primarily due to unfavorable development of general liability insurance claims.

Operating income margin for the Dollar Tree segment decreased to 12.0% for the 26 weeks ended July 29, 2023 from 17.9% 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 22.4% in the 26 weeks ended July 29, 2023 compared to 21.1% for the same period last year as a result of the following:

• Payroll expenses increased 70 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.

• Store facility costs increased 45 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, partially offset by leverage from the comparable store net sales increase.

• Other selling, general and administrative expenses increased 10 basis points primarily due to unfavorable development of general liability insurance claims.

Family Dollar

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

13 Weeks Ended

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

13 Weeks Ended 26 Weeks Ended

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

Net sales $ 3,446.7 $ 3,194.2 7.9 % $ 6,834.5 $ 6,312.5 8.3 %

3 unchanged sentences

Operating income margin 0.3 % 1.7 % (1.4) % 0.3 % 2.3 % (2.0) %

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.

Net sales for the Family Dollar segment increased $252.5 million, or 7.9%, for the 13 weeks ended July 29, 2023 compared to the same period last year.

The increase was due to a comparable store net sales increase of 5.8% and $154.7 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.

For the 13 weeks ended July 29, 2023, customer traffic increased 3.4% and average ticket increased 2.3%.

Net sales for the Family Dollar segment increased $522.0 million, or 8.3%, for the 26 weeks ended July 29, 2023 compared to the same period last year.

The increase was due to a comparable store net sales increase of 6.2% and $317.2 million of non-comparable store sales.

For the 26 weeks ended July 29, 2023, customer traffic increased 3.9% and average ticket increased 2.3%.

Gross profit margin for the Family Dollar segment decreased to 24.4% for the 13 weeks ended July 29, 2023 compared to 24.7% for the same period last year.

The decrease is due to the net of the following:

• 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 45 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.

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.

• Merchandise cost, which includes freight, decreased 5 basis points resulting from lower freight costs, partially offset by lower initial mark-on and higher sales of lower margin consumable merchandise.

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

Gross profit margin for the Family Dollar segment decreased to 24.6% for the 26 weeks ended July 29, 2023 compared to 25.3% for the same period last year.

The decrease is due to the net of the following:

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

• Merchandise cost, which includes freight, increased 40 basis points resulting from lower initial mark-on and higher sales of lower margin consumable merchandise, partially offset by lower freight costs.

• Distribution costs increased 10 basis points due to a higher amount of costs capitalized in the prior year resulting from increasing inventory levels during the prior year.

• Markdown costs decreased 15 basis points primarily due to higher clearance markdowns in the prior year as a result of shipping delays of seasonal merchandise and slow moving inventory items, and lower promotional markdowns in the current year.

• Occupancy costs decreased 30 basis points primarily due to leverage from the comparable store net sales increase.

Operating income margin for the Family Dollar segment decreased to 0.3% for the 13 weeks ended July 29, 2023 from 1.7% 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 increased to 24.1% in the 13 weeks ended July 29, 2023 compared to 23.0% for the same period last year as a result of the net of the following:

• Payroll expenses increased 65 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.

• 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 and higher costs in the prior year associated with a product recall.

• Store facility costs increased 40 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, partially offset by leverage from the comparable store net sales increase.

• Other selling, general and administrative expenses increased 10 basis points primarily due to increases in professional fees and advertising costs.

• 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.

Operating income margin for the Family Dollar segment decreased to 0.3% for the 26 weeks ended July 29, 2023 from 2.3% 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 24.4% in the 26 weeks ended July 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 50 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 recorded in the first quarter of the current year.

• Store facility costs increased 25 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, partially offset by leverage from the comparable store net sales increase and higher costs in the prior year associated with a product recall.

Liquidity and Capital Resources

We invest capital to build and open new stores, expand and renovate existing stores, expand our distribution network and operate our existing stores.

We invest capital to build and open new stores, expand and renovate existing stores, enhance and grow our distribution network, operate our existing stores, maintain and upgrade our technology, and support our other strategic initiatives.

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

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

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

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

The following table compares cash flow-related information for the 26 weeks ended July 29, 2023 and July 30, 2022:

26 Weeks Ended

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

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

Net cash provided by (used in):

2 unchanged sentences

Financing activities (272.2) (283.3)

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 provided by operating activities increased $403.2 million primarily due to lower inventory levels, partially offset by lower current year earnings, net of non-cash items, lower accounts payable, and lower accrued liability balances.

Net cash used in investing activities increased $247.6 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.

Net cash used in financing activities decreased $11.1 million due to lower taxes paid on exercises/vesting of stock-based compensation.

At July 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 $232.8 million was committed to letters of credit issued for routine purchases of imported merchandise as of July 29, 2023.

Additionally, in July 2023, we established a commercial paper program to issue unsecured commercial paper notes with maturities up to 397 days from the date of issue, up to a maximum aggregate face or principal amount outstanding at any time of $1.5 billion.

Our Revolving Credit Facility will serve as a liquidity backstop for the repayment of notes outstanding under the program.

As of July 29, 2023, no notes have been issued under the program.

For additional details regarding our commercial paper program, please see Note 3 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q .

We repurchased 1,728,713 and 1,754,496 shares of common stock on the open market during the 26 weeks ended July 29, 2023 and July 30, 2022, respectively, for $250.0 million and $250.0 million, respectively.

At July 29, 2023, we had $1.6 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