What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-06-05 compared with 2023-11-29 · 140 added, 197 removed, 153 unchanged (69% 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 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 design and implementation of internal controls around our multi-year technology transformation;

• The expected and possible outcome, costs, and impact of pending or potential litigation, arbitrations, other legal proceedings or governmental investigations (including FDA and DOJ matters), our plans regarding these matters, and the availability of indemnification or insurance with respect to such matters;

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

• Our merchandising plans and initiatives and related impacts, including those regarding product and brand assortment, merchandisable space and store layout, cooler and freezer expansions, private brand 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 emerging store formats such as H2.5, rural and XSB formats for Family Dollar stores, 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, truck fleet and transportation management systems, store delivery and equipment, store appearance, wage investments and other workforce investments and goals;

• Our expectations regarding the implementation and impact of investments in our technology infrastructure and the design and implementation of internal controls around our technology transformation;

• Our plans to close, relocate or re-banner stores as a result of our store portfolio optimization review;

• Our plans and expectations regarding our review of strategic alternatives for the Family Dollar business segment;

• The potential effect of general business or economic conditions on our business and our customers, including the direct and indirect effects of inflation, interest rates and government benefits;

• The expected and possible outcome, costs, and impact of pending or potential litigation, arbitrations, other legal proceedings or governmental investigations, including proceedings arising out of or relating to issues associated with Family Dollar’s West Memphis, Arkansas distribution center, our plans regarding these matters, and the availability of indemnification or insurance with respect to such matters;

• The impacts of tornado damage to our Dollar Tree distribution center in Marietta, Oklahoma, including expectations regarding inventory and property damage, related losses, the availability of insurance coverage and expected insurance recoveries, changes within our supply chain network and our customer shopping experience;

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

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

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Our forward-looking statements are all based on currently available operating, financial and business information.

The outcome of the events described in these forward-looking statements is subject to a variety of factors, including, but not limited to, the risks and uncertainties summarized below and the more detailed discussions in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections and elsewhere in our Annual Report on Form 10-K for the fiscal year ended January 28, 2023 and in this Quarterly Report on Form 10-Q.

The outcome of the events described in these forward-looking statements is subject to a variety of factors, including, but not limited to, the risks and uncertainties summarized below and the more detailed discussions in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections and elsewhere in our Annual Report on Form 10-K for the fiscal year ended February 3, 2024 and in this Quarterly Report on Form 10-Q.

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 merchandise, shipping, freight and fuel costs, wage and benefit costs and other operating costs.

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

• 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.

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

• Higher costs and disruptions in our distribution network could have an adverse impact on our sales 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 damage to our reputation or brand image or a decline in consumer confidence and spending as a result of consumer concerns about the quality and safety of our products or our brand standards, associate relations, and expectations regarding environmental and social responsibility.

• We could experience a decline in consumer confidence and spending because of concerns about the quality and safety of our products or our brand standards.

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

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

• Our global supply chain may be disrupted by geopolitical events, natural disasters, weather conditions or other events, including changes in United States trade policy with China.

• Risks associated with merchandise supply could adversely affect our financial performance.

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

• Pressure from competitors may reduce our sales and profits.

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

• 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.

• Our business could be adversely affected by internal or external retail theft or operational safety concerns.

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

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

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

• Our reliance on third party vendors and suppliers could negatively impact our business if we are unable to effectively manage these third parties.

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

• 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.

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

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

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

• Our business is seasonal, and adverse events during the fourth quarter could materially affect our full-year financial results.

• Failure to protect our inventory or other assets from loss and theft may impact our financial results.

• We have risks related to the security of our facilities including risks of personal injury to customers or associates.

• We face significant pressure from competitors which may reduce our sales and profits.

• Our business could be adversely affected if we fail to manage our organizational talent and capacity, including attracting and retaining qualified associates and key personnel.

• We rely on third parties in many aspects of our business, which creates additional risk.

• 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 could incur losses due to impairment of goodwill and other long-lived assets.

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

• The potential unauthorized access to our systems could disrupt operations or lead to the theft of data which may violate privacy laws and could damage our business reputation, subject us to negative publicity, litigation and costs, and adversely affect our results of operations or financial condition.

• Legal proceedings may adversely affect our reputation, business, results of operations or financial condition.

• Our failure to comply with applicable law, or to adequately respond to changes to such laws, could increase our expenses, expose us to legal risks or otherwise adversely affect us.

• Our business is subject to evolving disclosure requirements and expectations with respect to environmental, social and governance matters that could expose us to numerous risks.

• Our inability to access credit or capital markets, a downgrade of our credit ratings and/or increases in interest rates could negatively affect our financing costs, results of operations and financial condition.

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

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

We are a leading operator of more than 16,600 retail discount stores and we conduct our operations in two reporting segments.

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

We are a leading operator of more than 16,300 retail discount stores and conduct our operations through two reporting segments.

Our Dollar Tree segment is the leading operator of discount variety stores offering merchandise predominantly at the opening 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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We include sales from stores expanded, relocated or remodeled during the period in the calculation of comparable store net sales, which has the effect of increasing our comparable store net sales.

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.

Stores that have been re-bannered (i.e., Family Dollar stores converted to Dollar Tree stores, or vice versa) 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.

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.

Quarterly Results

Financial highlights for the 13 weeks ended October 28, 2023, as compared to the 13 weeks ended October 29, 2022, include:

• Net sales increased 5.4% to $7,309.1 million, primarily due to a 3.9% enterprise-wide comparable store net sales increase, and $245.8 million of net sales at non-comparable stores.

• Gross profit, as a percentage of net sales, decreased 20 basis points to 29.7%, primarily due to higher shrink, distribution and markdown costs, partially offset by lower freight costs.

• Selling, general and administrative expenses, as a percentage of total revenues, increased 130 basis points to 25.7%, primarily due to higher store-based payroll expenses, information technology systems costs, and depreciation and amortization.

Financial highlights for the 13 weeks ended May 4, 2024, as compared to the 13 weeks ended April 29, 2023, include:

• Net sales increased 4.2% to $7,626.4 million, due to a 1.0% enterprise-wide comparable store net sales increase and net sales of $457.4 million at non-comparable stores.

• Gross profit, as a percentage of net sales, increased 30 basis points to 30.8%, primarily due to lower freight costs, offset partially by increased sales of higher cost consumable merchandise and higher shrink.

• Selling, general and administrative expenses, as a percentage of total revenues, increased 50 basis points to 25.3%, primarily due to an increase in temporary labor on the Dollar Tree segment to support our multi-price rollout, severance and retention-related costs for store closures on the Family Dollar segment, and higher depreciation expense, offset partially by decreases in legal costs on the Family Dollar segment.

• Operating income, as a percentage of total revenues, decreased 20 basis points to 5.5%.

• The effective tax rate decreased 160 basis points to 21.8% primarily due to higher Work Opportunity Tax Credits as a percentage of pre-tax income in the current year, and lower net state taxes.

• The effective tax rate increased to 24.2% compared to 24.1%.

• Net income was $300.1 million, or $1.38 per diluted share, compared to $299.0 million, or $1.35 per diluted share.

At October 28, 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 39 weeks ended October 28, 2023 was approximately 9,385 selling square feet for the Dollar Tree segment and 9,390 selling square feet for the Family Dollar segment.

A breakdown of store counts and square footage by segment for the 39 weeks ended October 28, 2023 and October 29, 2022 is as follows:

At May 4, 2024, 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 May 4, 2024 was approximately 9,300 selling square feet for the Dollar Tree segment and 8,940 selling square feet for the Family Dollar segment.

A breakdown of store counts and square footage by segment for the 13 weeks ended May 4, 2024 and April 29, 2023 is as follows:

13 Weeks Ended

October 28, 2023 October 29, 2022

May 4, 2024 April 29, 2023

Dollar Tree Family Dollar Total Dollar Tree Family Dollar Total

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Re-bannered stores*

— (0.1) (0.1) — — —

Closings (0.1) (3.9) (4.0) (0.1) (0.1) (0.2)

Relocations — 0.2 0.2 0.1 0.2 0.3

— — — — 0.1 0.1

Ending 74.1 60.1 134.2 70.7 62.3 133.0

*Selling square footage impact of re-bannered or relocated stores is only provided if it equals or exceeds 0.1 million selling square feet

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

Subsequent to the 13 weeks ended October 28, 2023, we initiated a comprehensive review of the Family Dollar portfolio.

This will involve, among other things, identifying stores as candidates for closure, re-bannering, or relocation.

The percentage change in comparable store net sales for the 13 and 39 weeks ended October 28, 2023, as compared with the preceding year, is as follows:

13 Weeks Ended October 28, 2023

39 Weeks Ended October 28, 2023

During the fourth quarter of fiscal 2023, we initiated a comprehensive store portfolio optimization review, including identifying stores as candidates for closure, re-bannering, or relocation.

See the “Strategic Initiatives and Recent Developments” section below for additional detail.

The percentage change in comparable store net sales for the 13 weeks ended May 4, 2024, as compared with the preceding year, is as follows:

13 Weeks Ended May 4, 2024

Sales Growth Change in

Customer Traffic Change in

Average Ticket Sales Growth Change in

Customer Traffic Change in

Average Ticket

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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 for the 52 weeks ended October 28, 2023 and October 29, 2022 is as follows:

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

Net sales per selling square foot for the 52 weeks ended May 4, 2024 and April 29, 2023 is as follows:

52 Weeks Ended

October 28, 2023 October 29, 2022

May 4, 2024 April 29, 2023

Dollar Tree Family Dollar Total Dollar Tree Family Dollar Total

Net sales per selling square foot $235 $227 $231 $221 $216 $219

Strategic Initiatives

We continue to execute on a number of strategic initiatives across the Dollar Tree and Family Dollar banners to drive productive sales growth, improve operating efficiency, invest in technology, and expand our culture of service to our associates.

For the 52 weeks ended May 4, 2024, Family Dollar’s net sales per selling square foot includes net sales for the stores that were closed in connection with the store portfolio optimization review in the numerator of the calculation, but the related selling square footage as of May 4, 2024 is excluded from the denominator of the calculation which represents the average selling square footage for the 52-week period.

See our “Strategic Initiatives and Recent Developments” below for more information on the initiatives that are driving our comparable store net sales growth and net sales per selling square foot growth.

Strategic Initiatives and Recent Developments

We continue to execute on a number of strategic initiatives across the Dollar Tree and Family Dollar segments to 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 continue to expand our brand assortment at the $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 October 28, 2023, we have approximately 4,500 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 October 28, 2023, approximately 6,500 stores had $3, $4 and $5 frozen and refrigerated products.

We continue to expand our brand assortment at the $1.25 price point to provide greater value to our customers and increase customer traffic and store productivity.

We are continuing to expand our multi-price product assortment, which began with the introduction of $3 and $5 Dollar Tree Plus product in select discretionary categories, expanded into $3, $4 and $5 frozen and refrigerated product, and now comprises a wide assortment of other consumable and discretionary product.

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.

In fiscal 2024, we expect to expand our multi-price assortment in approximately 3,000 stores.

Family Dollar Merchandising.

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and XSB (Extra Small Box), which adds elements of H2.5 optimized to our smaller stores, particularly in urban markets.

As of October 28, 2023, we have approximately 1,600 across these three formats.

As of May 4, 2024, we have more than 2,050 stores across these three formats.

Across all of Family Dollar’s formats we are expanding our SKUs, continuing to add cooler doors, increasing our standard shelf profile, 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.

Store Portfolio Optimization and Family Dollar Strategic Alternatives Reviews.

Additionally, during the fourth quarter of fiscal 2023, we announced that we had initiated a comprehensive store portfolio optimization review which involved identifying stores for closure, relocation or re-bannering based on an evaluation of current market conditions and individual store performance, among other factors.

As a result of the portfolio optimization review, we identified approximately 970 underperforming Family Dollar stores, including approximately 600 stores to be closed in the first half of fiscal 2024, and approximately 370 stores to be closed at the end of each store's current lease term.

As of May 4, 2024, we have closed approximately 550 stores identified under the portfolio optimization review and expect to close an additional 150 during the remainder of fiscal 2024.

Subsequent to the quarter ended May 4, 2024, we announced that we had initiated a formal review of strategic alternatives for the Family Dollar business segment, which could include among others, a potential sale, spin-off or other disposition of the business.

There is not a set deadline or definitive timetable for the completion of the strategic alternatives review process, and there can be no assurance that this process will result in any transaction or particular outcome.

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.

Across both of our segments, 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 projects to optimize and modernize our stores, with a focus on improving store appearance, delivering consistent experiences across all stores, and driving positive sales trends.

Supply Chain Optimization .

Our supply chain initiatives include enhancing our distribution and transportation network, including investments in our trucking fleet, transportation management systems, a new co-bannered distribution center to improve efficiency, and a new rotacart delivery process to streamline the truck unloading and store delivery process.

Our supply chain initiatives include enhancing our distribution and transportation network, including investments in our truck fleet, transportation management systems, a new distribution center with enhanced automation to improve efficiency, and a new RotaCart delivery process to streamline the truck unloading and store delivery process.

Significant investments are also underway to improve climate control conditions in our distribution centers.

Technology Investment.

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

Marietta, Oklahoma Distribution Center.

On April 28, 2024, a tornado destroyed our Dollar Tree distribution center in Marietta, Oklahoma.

Based on the significant damage sustained by the facility, the inventory contained in the facility and the facility itself are not salvageable.

We have pivoted our supply chain network to deliver product to the approximately 600 Marietta-serviced Dollar Tree stores, and we expect that these efforts will limit disruption to the Dollar Tree shopping experience.

We anticipate incurring additional costs within our supply chain as a result of servicing these impacted stores, including additional stem miles for delivered product and outside storage, and expect such costs to negatively impact gross margin in the near term.

Results of Operations

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Note that gross profit margin is calculated as gross profit (i.e., net sales less cost of sales) divided by net sales.

The cost of sales rate is calculated by dividing cost of sales by net sales.

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

The following table contains results of operations data for the 13 and 39 weeks ended October 28, 2023 and October 29, 2022:

13 Weeks Ended 39 Weeks Ended

Basis points, as referred to below, are a percentage of net sales for expense categories within gross profit and cost of sales, and are a percentage of total revenue for all other expense categories.

A 100 basis point increase equals 1.00% and a 1 basis point increase equals 0.01%.

The following table contains results of operations data for the 13 weeks ended May 4, 2024 and April 29, 2023:

13 Weeks Ended

(in millions, except percentages)

October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022

May 4, 2024 April 29, 2023

Net sales $ 7,626.4 $ 7,319.5

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Other expense, net

0.2 0.2 0.2 0.3

Income before income taxes 396.1 393.7

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Operating income margin 5.5 % 5.7 %

Interest expense as a percentage of total revenue

0.4 % 0.5 % 0.4 % 0.5 %

Interest expense, net as a percentage of total revenue

Income before income taxes as percentage of total revenue 5.2 % 5.4 %

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Net income margin 3.9 % 4.1 %

13 Weeks Ended 39 Weeks Ended

(dollars in millions) October 28, 2023 October 29, 2022 Percentage Change October 28, 2023 October 29, 2022 Percentage Change

13 Weeks Ended

(dollars in millions) May 4, 2024 April 29, 2023 Percentage Change

Net sales $ 7,626.4 $ 7,319.5 4.2 %

Comparable store net sales change 1.0 % 4.8 %

The increase in net sales in the 13 weeks ended October 28, 2023 was a result of the comparable store net sales increases in the Dollar Tree and Family Dollar segments and net sales of $245.8 million at non-comparable stores.

Enterprise comparable store net sales increased 3.9% in the 13 weeks ended October 28, 2023, as a result of a 4.7% increase in customer traffic, partially offset by a 0.8% decrease in average ticket.

Comparable store net sales increased 5.4% in the Dollar Tree segment and increased 2.0% in the Family Dollar segment.

The increase in net sales in the 39 weeks ended October 28, 2023 was a result of the comparable store net sales increases in the Dollar Tree and Family Dollar segments and net sales of $790.9 million at non-comparable stores.

Enterprise comparable store net sales increased 5.2% in the 39 weeks ended October 28, 2023, as a result of a 5.7% increase in customer traffic, partially offset by a 0.4% decrease in average ticket.

The increase in net sales in the 13 weeks ended May 4, 2024 was a result of the comparable store net sales increases in the Dollar Tree and Family Dollar segments, and net sales of $457.4 million at non-comparable stores.

For the 13 weeks ended May 4, 2024, net sales at non-comparable stores include sales from the Family Dollar stores that were closed under the portfolio optimization review in the first quarter of this year.

Enterprise comparable store net sales increased 1.0% in the 13 weeks ended May 4, 2024, as a result of a 2.1% increase in customer traffic, partially offset by a 1.1% decrease in average ticket.

Comparable store net sales increased 1.7% in the Dollar Tree segment and increased 0.1% in the Family Dollar segment.

13 Weeks Ended 39 Weeks Ended

(dollars in millions) October 28, 2023 October 29, 2022 Percentage Change October 28, 2023 October 29, 2022 Percentage Change

The low single-digit comparable store net sales increase was primarily impacted by the Easter calendar shift to earlier in the quarter this year and a softer than expected sell through.

In addition, the macro environment continues to impact our customers due to the impact of inflationary pressures, higher interest rates, and reduced government benefits.

13 Weeks Ended

(dollars in millions) May 4, 2024 April 29, 2023 Percentage Change

Gross profit $ 2,347.7 $ 2,230.4 5.3 %

Gross profit margin 30.8 % 30.5 % 0.3 %

The decrease in gross profit margin during the 13 weeks ended October 28, 2023 was a result of the net of the following:

• Shrink costs increased approximately 65 basis points primarily due to unfavorable physical inventory results.

• Distribution costs increased approximately 45 basis points primarily due to a higher amount of costs capitalized during the prior year quarter resulting from increasing inventory levels in both the Dollar Tree and Family Dollar segments during that period;

as well as higher distribution center payroll costs recognized during the current year quarter, primarily in the Dollar Tree segment.

• Markdown costs increased approximately 15 basis points primarily due to a voluntary retail-level product recall in the Family Dollar segment.

• Merchandise cost, which includes freight, decreased approximately 105 basis points primarily due to lower freight costs, partially offset by higher sales of lower margin consumable merchandise, and cost increases due to inflation, primarily in the Dollar Tree segment.

The decrease in gross profit margin during the 39 weeks ended October 28, 2023 was a result of the net of the following:

• Merchandise cost, which includes freight, increased approximately 105 basis points primarily due to re-investment in value-product assortments during the current year after transitioning to the $1.25 price point during the prior year at Dollar Tree, and cost increases due to inflation;

as well as higher sales of lower margin consumable merchandise, partially offset by lower freight costs.

• Shrink costs increased approximately 60 basis points primarily due to unfavorable physical inventory results.

• Distribution costs increased approximately 45 basis points primarily due to a higher amount of costs capitalized during the prior year resulting from increasing inventory levels in both the Dollar Tree and Family Dollar segments during that period, and higher distribution center payroll costs recognized during the current year in the Dollar Tree segment.

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

We expect continued pressure on gross profit margin due to unfavorable shrink results in the near term.

Gross profit margin increased during the 13 weeks ended May 4, 2024 due to a 30 basis point decrease in cost of sales.

The cost of sales rate decreased to 69.2% during the 13 weeks ended May 4, 2024 from 69.5% during the same period last year primarily due to lower freight costs, partially offset by increased sales of higher cost consumable merchandise and increased shrink costs due to unfavorable physical inventory results.

Selling, General and Administrative Expenses

13 Weeks Ended 39 Weeks Ended

(dollars in millions) October 28, 2023 October 29, 2022 Percentage Change October 28, 2023 October 29, 2022 Percentage Change

13 Weeks Ended

(dollars in millions) May 4, 2024 April 29, 2023 Percentage Change

Selling, general and administrative

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expense rate 25.3 % 24.8 % 0.5 %

The increase in the selling, general and administrative expense rate in the 13 weeks ended October 28, 2023 was the result of the following:

• Payroll expenses increased approximately 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.

• Other selling, general and administrative expenses increased approximately 30 basis points primarily due to higher information technology system costs and higher travel and related costs.

• Depreciation and amortization expense increased approximately 25 basis points primarily due to capital expenditures related to store renovations and improvements, partially offset by leverage from the comparable store net sales increase.

• Store facility costs increased approximately 5 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.

The increase in the selling, general and administrative expense rate in the 39 weeks ended October 28, 2023 was the result of the following:

• Payroll expenses increased approximately 65 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 approximately 45 basis points primarily due to increases in professional fees, legal costs, and higher information technology system costs, partially offset by higher costs in the prior year in connection with long-lived asset impairments at DC 202.

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.

• Store facility costs increased approximately 15 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 increased approximately 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 selling, general and administrative expense rate increased 50 basis points primarily due to temporary labor on the Dollar Tree segment to support our multi-price rollout, higher depreciation expense from store investments and loss of leverage from the low-single digit comparable store net sales increase, and severance and retention-related expenses for Family Dollar stores closed in connection with the portfolio optimization review in the first quarter of this year.

The increases were partially offset by a decrease in legal costs as the prior year quarter included a $30.0 million accrual for DC 202-related legal matters on the Family Dollar segment.

Operating Income

13 Weeks Ended 39 Weeks Ended

(dollars in millions) October 28, 2023 October 29, 2022 Percentage Change October 28, 2023 October 29, 2022 Percentage Change

13 Weeks Ended

(dollars in millions) May 4, 2024 April 29, 2023 Percentage Change

Operating income $ 420.6 $ 419.7 0.2 %

Operating income margin 5.5 % 5.7 % (0.2) %

Operating income margin decreased to 4.1% for the 13 weeks ended October 28, 2023 compared to 5.5% 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 4.6% for the 39 weeks ended October 28, 2023 compared to 7.9% 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 5.5% for the 13 weeks ended May 4, 2024 compared to 5.7% for the same period last year, resulting from the increase in the selling, general and administrative expense rate, partially offset by the increase in gross profit margin, as described above.

Interest Expense, Net

13 Weeks Ended 39 Weeks Ended

(dollars in millions) October 28, 2023 October 29, 2022 Percentage Change October 28, 2023 October 29, 2022 Percentage Change

13 Weeks Ended

(dollars in millions) May 4, 2024 April 29, 2023 Percentage Change

Interest expense, net $ 24.4 $ 25.9 (5.8) %

Interest expense, net decreased $2.3 million in the 13 weeks ended October 28, 2023 compared to the same period last year, resulting from higher interest income on investments.

Interest expense, net decreased $16.8 million in the 39 weeks ended October 28, 2023 compared to the same period last year, resulting from higher interest income on investments.

Interest expense, net decreased $1.5 million in the 13 weeks ended May 4, 2024 compared to the same period last year, resulting from higher interest income earned on investments.

Provision for Income Taxes

13 Weeks Ended 39 Weeks Ended

(dollars in millions) October 28, 2023 October 29, 2022 Percentage Change October 28, 2023 October 29, 2022 Percentage Change

13 Weeks Ended

(dollars in millions) May 4, 2024 April 29, 2023 Percentage Change

Provision for income taxes $ 96.0 $ 94.7 1.4 %

Effective tax rate 24.2 % 24.1 % 0.1 %

The effective tax rate was 21.8% for the 13 weeks ended October 28, 2023 compared to 23.4% for the comparable prior year period, resulting from higher Work Opportunity Tax Credits as a percentage of pre-tax income in the current year and lower net state taxes, offset partially by higher non-deductible expenses.

The effective tax rate was 23.4% for the 39 weeks ended October 28, 2023 compared to 23.5% 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 lower stock-based compensation deductions and higher non-deductible expenses.

The effective tax rate was 24.2% for the 13 weeks ended May 4, 2024 compared to 24.1% for the comparable prior year period, resulting from higher tax expense in the current year related to restricted stock vesting, partially offset by lower non-deductible expenses.

Segment Information

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

13 Weeks Ended 39 Weeks Ended

(dollars in millions) October 28, 2023 October 29, 2022 Percentage Change October 28, 2023 October 29, 2022 Percentage Change

13 Weeks Ended

(dollars in millions) May 4, 2024 April 29, 2023 Percentage Change

Net sales $ 4,165.6 $ 3,931.7 5.9 %

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Operating income margin 12.5 % 13.6 % (1.1) %

Net sales for the Dollar Tree segment increased $247.7 million, or 6.6%, during the 13 weeks ended October 28, 2023 compared to the same period last year.

The increase was primarily due to an increase in comparable store net sales of 5.4% and $97.4 million of non-comparable store sales.

Customer traffic increased 7.0% and average ticket decreased 1.5%.

Net sales for the Dollar Tree segment increased $699.9 million, or 6.3%, during the 39 weeks ended October 28, 2023 compared to the same period last year.

The increase was primarily due to an increase in comparable store net sales of 5.6% and $287.9 million of non-comparable store sales.

Net sales for the Dollar Tree segment increased $233.9 million, or 5.9%, during the 13 weeks ended May 4, 2024 compared to the same period last year due to an increase in comparable store net sales of 1.7%, and net sales of $184.7 million at non-comparable stores.

Customer traffic increased 2.8% and average ticket decreased 1.1%.

Gross profit margin for the Dollar Tree segment decreased to 34.8% during the 13 weeks ended October 28, 2023 compared to 35.4% during the same period last year as a result of the net of the following:

• Distribution costs increased approximately 70 basis points primarily due to a higher amount of costs capitalized during the prior year quarter resulting from increasing inventory levels during that period and higher distribution center payroll costs recognized during the current year quarter.

• Shrink costs increased approximately 60 basis points primarily due to unfavorable physical inventory results.

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

• Merchandise cost, which includes freight, decreased approximately 55 basis points primarily due to lower freight costs, partially offset by cost increases due to inflation and higher sales of lower margin consumable merchandise.

Gross profit margin for the Dollar Tree segment decreased to 34.5% during the 39 weeks ended October 28, 2023 compared to 37.8% during the same period last year as a result of the net of the following:

• Merchandise cost, which includes freight, increased approximately 215 basis points primarily due to re-investment in value-product assortments during the current year after transitioning to the $1.25 price point during the prior year and cost increases due to inflation;

as well as higher sales of lower margin consumable merchandise, partially offset by lower freight costs.

• Distribution costs increased approximately 75 basis points primarily due to a higher amount of costs capitalized during the prior year resulting from increasing inventory levels during that period, and higher distribution center payroll costs recognized during the current year.

• Shrink costs increased approximately 65 basis points primarily due to unfavorable physical inventory results.

• Markdowns decreased approximately 5 basis points primarily due to higher clearance markdowns during the prior year in connection with the transition to a higher value assortment at the $1.25 price point.

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

Operating income margin for the Dollar Tree segment decreased to 12.1% during the 13 weeks ended October 28, 2023 from 13.3% during 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 22.8% during the 13 weeks ended October 28, 2023 compared to 22.1% during the same period last year as a result of the following:

• Payroll expenses increased approximately 60 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.

Operating income margin for the Dollar Tree segment decreased to 12.0% during the 39 weeks ended October 28, 2023 from 16.3% during 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 22.5% during the 39 weeks ended October 28, 2023 compared to 21.5% during the same period last year as a result of the following:

• Payroll expenses increased approximately 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 approximately 30 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 approximately 5 basis points primarily due to unfavorable development of general liability insurance claims.

• 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.

Gross profit margin in the Dollar Tree segment increased to 35.4% during the 13 weeks ended May 4, 2024 from 35.3% during the same period last year due to a 10 basis point decrease in cost of sales.

The cost of sales rate decreased to 64.6% during the 13 weeks ended May 4, 2024 from 64.7% during the same period last year primarily due to lower freight costs, partially offset by increased sales of higher cost consumable merchandise and increased shrink costs resulting from unfavorable physical inventory results.

Operating income margin for the Dollar Tree segment decreased to 12.5% during the 13 weeks ended May 4, 2024 from 13.6% during the same period last year as a result of an increase in the selling, general and administrative expense rate, partially offset by the gross profit margin increase noted above.

The selling, general and administrative expense rate increased 120 basis points primarily due to temporary labor to support our multi-price rollout, higher depreciation expense from store investments and loss of leverage from the low-single digit comparable store net sales increase.

Family Dollar

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

13 Weeks Ended 39 Weeks Ended

(dollars in millions) October 28, 2023 October 29, 2022 Percentage Change October 28, 2023 October 29, 2022 Percentage Change

13 Weeks Ended

(dollars in millions) May 4, 2024 April 29, 2023 Percentage Change

Net sales $ 3,460.8 $ 3,387.8 2.2 %

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Gross profit margin 25.2 % 24.8 % 0.4 %

Operating income (loss)

$ (66.3) $ (18.4) 260.3 % $ (45.7) $ 126.1 (136.2) %

Operating margin

(2.0) % (0.6) % (1.4) % (0.5) % 1.3 % (1.8) %

Net sales for the Family Dollar segment increased $124.8 million, or 3.9%, during the 13 weeks ended October 28, 2023 compared to the same period last year.

The increase was primarily due to a comparable store net sales increase of 2.0% and $148.5 million of non-comparable store sales.

For the 13 weeks ended October 28, 2023, customer traffic increased 1.4% and average ticket increased 0.7%.

Net sales for the Family Dollar segment increased $646.8 million, or 6.8%, during the 39 weeks ended October 28, 2023 compared to the same period last year.

The increase was primarily due to a comparable store net sales increase of 4.8% and $503.0 million of non-comparable store sales.

For the 39 weeks ended October 28, 2023, customer traffic increased 3.0% and average ticket increased 1.7%.

We continue to expect pressure on comparable store net sales growth and weakness in sales of discretionary products in the near term.

Gross profit margin for the Family Dollar segment increased to 23.6% during the 13 weeks ended October 28, 2023 compared to 23.4% during the same period last year.

The increase is due to the net of the following:

• Merchandise cost, which includes freight, decreased approximately 140 basis points primarily due to lower freight costs, partially offset by higher sales of lower margin consumable merchandise.

• Shrink costs increased approximately 70 basis points primarily due to unfavorable physical inventory results.

• Markdowns increased approximately 35 basis points primarily due to a voluntary retail-level product recall during the current quarter.

• Distribution costs increased approximately 15 basis points primarily due to a higher amount of costs capitalized in the prior year resulting from increasing inventory levels during that period.

Gross profit margin for the Family Dollar segment decreased to 24.3% during the 39 weeks ended October 28, 2023 compared to 24.6% during the same period last year.

The decrease is due to the net of the following:

• Shrink costs increased approximately 55 basis points primarily due to unfavorable physical inventory results.

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

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

• Merchandise cost, which includes freight, decreased approximately 20 basis points primarily due to lower freight costs, partially offset by cost increases and higher sales of lower margin consumable merchandise.

Operating margin for the Family Dollar segment decreased to negative 2.0% during the 13 weeks ended October 28, 2023 from negative 0.6% during the same period last year resulting from an increase in the selling, general and administrative expense rate, partially offset by the gross profit margin increase noted above.

The selling, general and administrative expense rate increased to 25.6% during the 13 weeks ended October 28, 2023 compared to 24.0% during the same period last year as a result of the following:

• Payroll expenses increased approximately 80 basis points primarily due to wage investments and minimum wage increases in store payroll.

• Store facility costs increased approximately 40 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 a voluntary retail-level product recall in the current quarter.

• Depreciation and amortization expense increased approximately 40 basis points primarily due to capital expenditures related to store renovations and improvements.

• Other selling, general and administrative expenses were primarily unchanged as a percentage of total revenue as an increase in advertising costs was offset by a decrease in legal costs.

Operating margin for the Family Dollar segment decreased to negative 0.5% during the 39 weeks ended October 28, 2023 from 1.3% during 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 24.8% during the 39 weeks ended October 28, 2023 compared to 23.3% during the same period last year as a result of the following:

• Payroll expenses increased approximately 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.

• Other selling, general and administrative expenses increased approximately 35 basis points primarily due to increases in legal costs and advertising costs, partially offset by higher costs in the prior year in connection with long-lived asset impairments at DC 202.

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 approximately 30 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 related to issues at DC 202.

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

Operating income $ 36.9 $ 8.8 319.3 %

Operating income margin 1.1 % 0.3 % 0.8 %

Net sales for the Family Dollar segment increased $73.0 million, or 2.2%, during the 13 weeks ended May 4, 2024 compared to the same period last year due to an increase in comparable store net sales of 0.1%, and net sales of $272.7 million at non-comparable stores.

For the 13 weeks ended May 4, 2024, net sales at non-comparable stores include sales from the stores that were closed under the portfolio optimization review in the first quarter of this year.

Customer traffic increased 0.9% and average ticket decreased 0.8%.

Gross profit margin in the Family Dollar segment increased to 25.2% during the 13 weeks ended May 4, 2024 from 24.8% during the same period last year due to a 40 basis point decrease in cost of sales.

The cost of sales rate decreased to 74.8% during the 13 weeks ended May 4, 2024 from 75.2% during the same period last year primarily due to lower freight costs, partially offset by cost increases due to inflation and increased sales of higher cost consumable merchandise.

Operating income margin for the Family Dollar segment increased to 1.1% during the 13 weeks ended May 4, 2024 from 0.3% during the same period last year resulting from the increase in gross profit margin noted above and a decrease in the selling, general and administrative expense rate.

The selling, general and administrative expense rate decreased 40 basis points primarily due to a decrease in legal costs as the prior year quarter included a $30.0 million accrual for DC 202-related legal matters.

The decrease was partially offset by severance and retention-related expenses for stores closed in connection with the portfolio optimization review in the first quarter of this year, higher depreciation expense from store investments and loss of leverage from the low comparable store net sales increase.

Liquidity and Capital Resources

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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 and commercial paper program.

The following table compares cash flow-related information for the 39 weeks ended October 28, 2023 and October 29, 2022:

The following table compares cash flow-related information for the 13 weeks ended May 4, 2024 and April 29, 2023:

13 Weeks Ended

(in millions) October 28, 2023 October 29, 2022

(in millions) May 4, 2024 April 29, 2023

Net cash provided by (used in):

2 unchanged sentences

Financing activities (287.8) (167.6)

Net cash provided by operating activities increased $695.5 million primarily due to lower inventory levels, partially offset by lower current year earnings, net of non-cash items.

Net cash used in investing activities increased $396.4 million due to higher capital expenditures.

Net cash used in financing activities decreased $35.9 million due to lower payments for stock repurchases, offset partially by $229.1 million of net short-term borrowings in the current year compared to $350.0 million of net short-term borrowings in the prior year.

At October 28, 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 $4.1 million.

We also have $425.0 million in trade letters of credit with various financial institutions, under which $132.6 million was committed to letters of credit issued for routine purchases of imported merchandise as of October 28, 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 October 28, 2023, $230.0 million of notes were outstanding under the program.

For additional details regarding our commercial paper program, please see Note 4 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

We repurchased 3,905,599 and 4,613,696 shares of common stock on the open market during the 39 weeks ended October 28, 2023 and October 29, 2022, respectively, for $504.3 million and $647.5 million, respectively.

At October 28, 2023, we had $1.35 billion remaining under our Board repurchase authorization.

Net cash provided by operating activities decreased $56.3 million primarily due to inventory levels decreasing at a lower rate compared to the prior year and decreases in other current liabilities, partially offset by increases in accounts payable.

Net cash used in investing activities increased $120.3 million due to higher capital expenditures in the current year.

Net cash used in financing activities increased $120.2 million primarily due to higher payments for stock repurchases in the current year.

At May 4, 2024, 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 $4.1 million.

We also have a commercial paper program under

which we may issue unsecured commercial paper notes up to an aggregate amount outstanding at any time of $1.5 billion.

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

As of May 4, 2024, there were no notes outstanding under the commercial paper program.

Additionally, we have $355.0 million in trade letters of credit with various financial institutions, under which $48.8 million was committed to letters of credit issued for routine purchases of imported merchandise as of May 4, 2024.

We repurchased 2,537,302 and 1,025,000 shares of common stock on the open market at a cost of $312.8 million and $152.1 million, including applicable excise tax, during the 13 weeks ended May 4, 2024 and April 29, 2023, respectively.

Of the shares repurchased during the 13 weeks ended May 4, 2024 and April 29, 2023, $37.8 million and $7.7 million, respectively, settled subsequent to May 4, 2024 and April 29, 2023, respectively, and these amounts were accrued in the accompanying unaudited Condensed Consolidated Balance Sheets.

At May 4, 2024, we had $1.04 billion remaining under our existing $2.5 billion Board repurchase authorization.

Critical Accounting Estimates and Assumptions

Our condensed consolidated financial statements have been prepared in accordance with U.S.

Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

To prepare these financial statements, we must make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the disclosures of contingent assets and liabilities.

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Actual results could be significantly different from these estimates.

Refer to Note 1 of our Consolidated Financial Statements, included in our Annual Report on Form 10-K for the fiscal year ended January 28, 2023, for a summary of our significant accounting policies and our assessment of recently issued accounting standards.

Refer to Note 2 of our Consolidated Financial Statements, included in our Annual Report on Form 10-K for the fiscal year ended February 3, 2024, for a summary of our significant accounting policies.

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