What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-09-04 compared with 2024-06-05 · 140 added, 93 removed, 200 unchanged (54% of the section changed)

10 unchanged sentences

• 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 expectations regarding the implementation and impact of investments in our technology 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 potential effect of general business or economic conditions on our business and our customers, including the direct and indirect effects of inflation and interest rates on our sales and our operating costs and income;

• 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;

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

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

• Risks related to inflation and interest rates;

• Our expectations regarding our commercial paper program and supply chain finance program;

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

• Management’s estimates associated with our critical accounting estimates, including self-insurance liabilities for general liability claims.

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

21 unchanged sentences

• 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.

• Legal proceedings may adversely affect our reputation and business, and higher costs related to reimbursing, settling, or litigating claims may impact our 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.

12 unchanged sentences

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 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 higher 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.

2 unchanged sentences

First is our success at opening new stores.

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.

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

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

4 unchanged sentences

Quarterly Results

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.

Financial highlights for the 13 weeks ended August 3, 2024, as compared to the 13 weeks ended July 29, 2023, include:

• Net sales increased 0.7% to $7,372.7 million, primarily due to a 0.7% enterprise-wide comparable store net sales increase.

• Gross profit, as a percentage of net sales, increased 80 basis points to 30.0%, primarily due to lower freight costs, partially offset by increased sales of higher cost consumable merchandise, and increased occupancy and distribution costs.

• Selling, general and administrative expenses, as a percentage of total revenues, increased 200 basis points to 27.3%, primarily due to unfavorable development of general liability claims, higher depreciation expense from store investments, increases in temporary labor on the Dollar Tree segment to support our multi-price rollout, and the loss of leverage from the low single-digit comparable store net sales increase, partially offset by lower incentive compensation.

• Operating income, as a percentage of total revenues, decreased 110 basis points to 2.8%.

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

• The effective tax rate was 24.0% and remained unchanged as compared to the prior year quarter.

• Net income was $132.4 million, or $0.62 per diluted share, compared to $200.4 million, or $0.91 per diluted share.

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:

At August 3, 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 26 weeks ended August 3, 2024 was approximately 9,330 selling square feet for the Dollar Tree segment and 8,840 selling square feet for the Family Dollar segment.

A breakdown of store counts and square footage by segment for the 26 weeks ended August 3, 2024 and July 29, 2023 is as follows:

26 Weeks Ended

May 4, 2024 April 29, 2023

August 3, 2024 July 29, 2023

Dollar Tree Family Dollar Total Dollar Tree Family Dollar Total

14 unchanged sentences

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

The store counts above do not include new stores until they are opened for sales.

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

1 unchanged sentence

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

The percentage change in comparable store net sales for the 13 and 26 weeks ended August 3, 2024, as compared with the preceding year, is as follows:

13 Weeks Ended August 3, 2024

26 Weeks Ended August 3, 2024

Sales Growth Change in

Customer Traffic Change in

Average Ticket Sales Growth Change in

Customer Traffic Change in

Average Ticket

6 unchanged sentences

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:

Net sales per selling square foot for the 52 weeks ended August 3, 2024 and July 29, 2023 is as follows:

52 Weeks Ended

May 4, 2024 April 29, 2023

August 3, 2024 July 29, 2023

Dollar Tree Family Dollar Total Dollar Tree Family Dollar Total

Net sales per selling square foot $235 $225 $231 $225 $218 $222

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.

For the 52 weeks ended August 3, 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 August 3, 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.

4 unchanged sentences

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.

As of August 3, 2024, we have expanded our multi-price assortment in approximately 1,600 stores.

99 Cents Only Stores Acquisition.

During the second quarter of fiscal 2024, we acquired designation rights for up to 170 leases of 99 Cents Only Stores across Arizona, California, Nevada and Texas.

The designation rights were acquired following the bankruptcy of 99 Cents Only Stores, which provided us an attractive opportunity to secure leases in priority markets.

We have secured the leases for 164 of these stores and have opened approximately half of these stores under our Dollar Tree segment.

We expect to open the remaining stores during the second half of fiscal 2024 under our Dollar Tree segment.

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 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.

As of August 3, 2024, we have more than 2,150 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 height presentation, 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.

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.

As of August 3, 2024, we have closed approximately 655 stores identified under the portfolio optimization review and expect to close an additional 45 during the remainder of fiscal 2024.

During the second quarter of fiscal 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.

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Technology Investment.

We continue our multi-year plan for significant investment in our technology across our business, including our store network and point-of-sale, merchandising and supply chain.

We continue our multi-year plan for significant investment in our technology across our business, including our store systems, merchandising and supply chain.

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

2 unchanged sentences

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.

We have pivoted our supply chain network to deliver products 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 are 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 continue negatively impacting gross margin in the near term.

General Liability Claims Development.

Our self-insured general liability claims related to customer accidents and other incidents at our stores continue to develop unfavorably due to the rising costs to reimburse, settle, or litigate the claims.

As a result, our actuarially determined liabilities were increased during the second quarter, contributing to a $64.3 million increase in our general liability claim expenses compared to the prior year quarter.

This increase was comprised of a $45.3 million increase in the Dollar Tree segment and a $19.0 million increase in the Family Dollar segment.

The liabilities related to our self-insurance programs, which include general liability claims, are estimates that require judgment and the use of assumptions.

Refer to our “Critical Accounting Estimates and Assumptions” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for more information on the estimates and assumptions related to these liabilities.

Such estimates are inherently uncertain, and future changes in claim trends and assumptions could result in significant adjustments to our liabilities, which could materially and adversely affect our results of operations.

Results of Operations

5 unchanged sentences

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

The following table contains results of operations data for the 13 and 26 weeks ended August 3, 2024 and July 29, 2023:

13 Weeks Ended 26 Weeks Ended

(in millions, except percentages)

May 4, 2024 April 29, 2023

August 3, 2024 July 29, 2023 August 3, 2024 July 29, 2023

Net sales $ 7,372.7 $ 7,320.1 $ 14,999.1 $ 14,639.6

5 unchanged sentences

Interest expense, net 28.9 24.2 53.3 50.1

Other expense, net

Other (income) expense, net

— (0.1) 0.1 —

Income before income taxes 174.2 263.7 570.3 657.4

7 unchanged sentences

Interest expense, net as a percentage of total revenue

0.4 % 0.3 % 0.4 % 0.3 %

Income before income taxes as percentage of total revenue 2.4 % 3.6 % 3.8 % 4.5 %

2 unchanged sentences

Net income margin 1.8 % 2.7 % 2.9 % 3.4 %

13 Weeks Ended

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

13 Weeks Ended 26 Weeks Ended

(dollars in millions) August 3, 2024 July 29, 2023 Percentage Change August 3, 2024 July 29, 2023 Percentage Change

Net sales $ 7,372.7 $ 7,320.1 0.7 % $ 14,999.1 $ 14,639.6 2.5 %

Comparable store net sales change 0.7 % 6.9 % 0.8 % 5.9 %

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.

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

The increase in net sales in the 13 weeks ended August 3, 2024 was a result of the comparable store net sales increase in the Dollar Tree segment, and net sales of $336.2 million at non-comparable stores.

The increase was partially offset by lower sales on the Family Dollar segment resulting from approximately 655 stores closed under the portfolio optimization review since the same period last year, and a comparable store net sales decrease for that segment.

For the 13 weeks ended August 3, 2024, net sales at non-comparable stores included $10.7 million from the Family Dollar stores that were closed under the portfolio optimization review in the second quarter of this year.

Enterprise comparable store net sales increased 0.7% in the 13 weeks ended August 3, 2024, as a result of a 1.1% increase in customer traffic, partially offset by a 0.5% decrease in average ticket.

Comparable store net sales increased 1.3% in the Dollar Tree segment and decreased 0.1% in the Family Dollar segment.

The increase in net sales in the 26 weeks ended August 3, 2024 was a result of the comparable store net sales increase in the Dollar Tree segment, and net sales of $846.9 million at non-comparable stores.

The increase was partially offset by lower sales on the Family Dollar segment resulting from approximately 655 stores closed under the portfolio optimization review since the same period last year.

For the 26 weeks ended August 3, 2024, net sales at non-comparable stores included $189.9 million from the Family Dollar stores that were closed under the portfolio optimization review in the first half of this year.

Enterprise comparable store net sales increased 0.8% in the 26 weeks ended August 3, 2024, as a result of a 1.6% increase in customer traffic, partially offset by a 0.8% decrease in average ticket.

Comparable store net sales increased 1.5% in the Dollar Tree segment and was flat in the Family Dollar segment.

The low single-digit comparable store net sales increase was primarily impacted by the macro economic environment which continues to affect our customers due to the impact of inflationary pressures and higher interest rates.

We expect these sales trends, and the resulting negative impact on operating income, to continue into the second half of fiscal 2024.

13 Weeks Ended 26 Weeks Ended

(dollars in millions) August 3, 2024 July 29, 2023 Percentage Change August 3, 2024 July 29, 2023 Percentage Change

Gross profit $ 2,214.5 $ 2,134.7 3.7 % $ 4,562.2 $ 4,365.1 4.5 %

Gross profit margin 30.0 % 29.2 % 0.8 % 30.4 % 29.8 % 0.6 %

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.

Gross profit margin increased during the 13 weeks ended August 3, 2024 due to an 80 basis point decrease in cost of sales.

The cost of sales rate decreased to 70.0% during the 13 weeks ended August 3, 2024 from 70.8% during the same period last year primarily due to lower freight costs, partially offset by increased sales of higher cost consumable merchandise, higher occupancy costs on the Dollar Tree segment resulting from the loss of leverage from the low single-digit comparable store net sales increase, and higher distribution costs on the Family Dollar segment.

Gross profit margin increased during the 26 weeks ended August 3, 2024 due to a 60 basis point decrease in cost of sales.

The cost of sales rate decreased to 69.6% during the 26 weeks ended August 3, 2024 from 70.2% during the same period last year primarily due to lower freight costs, partially offset by increased sales of higher cost consumable merchandise, higher distribution costs and increased shrink costs due to unfavorable physical inventory results.

Selling, General and Administrative Expenses

13 Weeks Ended

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

13 Weeks Ended 26 Weeks Ended

(dollars in millions) August 3, 2024 July 29, 2023 Percentage Change August 3, 2024 July 29, 2023 Percentage Change

Selling, general and administrative

2 unchanged sentences

expense rate 27.3 % 25.3 % 2.0 % 26.3 % 25.0 % 1.3 %

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.

The selling, general and administrative expense rate increased 200 basis points during the 13 weeks ended August 3, 2024 primarily due to unfavorable development of general liability claims, higher depreciation expense from store investments, temporary labor on the Dollar Tree segment to support our multi-price rollout, higher utilities costs, and loss of leverage from the low single-digit comparable store net sales increase.

The increases were partially offset by lower incentive compensation costs.

The selling, general and administrative expense rate increased 130 basis points during the 26 weeks ended August 3, 2024 primarily due to unfavorable development of general liability claims, higher depreciation expense from store investments, temporary labor on the Dollar Tree segment to support our multi-price rollout, higher utilities costs, and loss of leverage from the low single-digit comparable store net sales increase.

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

Operating Income

13 Weeks Ended

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

13 Weeks Ended 26 Weeks Ended

(dollars in millions) August 3, 2024 July 29, 2023 Percentage Change August 3, 2024 July 29, 2023 Percentage Change

Operating income $ 203.1 $ 287.8 (29.4) % $ 623.7 $ 707.5 (11.8) %

Operating income margin 2.8 % 3.9 % (1.1) % 4.2 % 4.8 % (0.6) %

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.

Operating income margin decreased to 2.8% for the 13 weeks ended August 3, 2024 compared to 3.9% 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.

Operating income margin decreased to 4.2% for the 26 weeks ended August 3, 2024 compared to 4.8% 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

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

13 Weeks Ended 26 Weeks Ended

(dollars in millions) August 3, 2024 July 29, 2023 Percentage Change August 3, 2024 July 29, 2023 Percentage Change

Interest expense, net $ 28.9 $ 24.2 19.4 % $ 53.3 $ 50.1 6.4 %

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.

Interest expense, net increased $4.7 million in the 13 weeks ended August 3, 2024 compared to the same period last year, due to a decrease in interest income resulting from lower invested cash, and interest incurred for short-term borrowings under our commercial paper program.

There were no borrowings under our commercial paper program in the same period last year.

Interest expense, net increased $3.2 million in the 26 weeks ended August 3, 2024 compared to the same period last year, due to a decrease in interest income resulting from lower invested cash, and interest incurred for short-term borrowings under our commercial paper program.

There were no borrowings under our commercial paper program in the same period last year.

Provision for Income Taxes

13 Weeks Ended

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

13 Weeks Ended 26 Weeks Ended

(dollars in millions) August 3, 2024 July 29, 2023 Percentage Change August 3, 2024 July 29, 2023 Percentage Change

Provision for income taxes $ 41.8 $ 63.3 (34.0) % $ 137.8 $ 158.0 (12.8) %

Effective tax rate 24.0 % 24.0 % — % 24.2 % 24.0 % 0.2 %

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.

The effective tax rate was 24.0% for the 13 weeks ended August 3, 2024 and remained unchanged as compared to the prior year quarter.

The effective tax rate was 24.2% for the 26 weeks ended August 3, 2024 compared to 24.0% for the comparable prior year period, resulting primarily from higher tax expense in the current year related to restricted stock vesting, partially offset by lower non-deductible expenses.

Segment Information

1 unchanged sentence

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

13 Weeks Ended

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

13 Weeks Ended 26 Weeks Ended

(dollars in millions) August 3, 2024 July 29, 2023 Percentage Change August 3, 2024 July 29, 2023 Percentage Change

Net sales $ 4,065.5 $ 3,873.4 5.0 % $ 8,231.1 $ 7,805.1 5.5 %

3 unchanged sentences

Operating income margin 8.4 % 10.3 % (1.9) % 10.5 % 12.0 % (1.5) %

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.

Net sales for the Dollar Tree segment increased $192.1 million, or 5.0%, during the 13 weeks ended August 3, 2024 compared to the same period last year due to an increase in comparable store net sales of 1.3%, and net sales of $207.5 million at non-comparable stores.

Customer traffic increased 1.4% and average ticket decreased 0.1%.

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.

Net sales for the Dollar Tree segment increased $426.0 million, or 5.5%, during the 26 weeks ended August 3, 2024 compared to the same period last year due to an increase in comparable store net sales of 1.5%, and net sales of $401.6 million at non-comparable stores.

Customer traffic increased 2.1% and average ticket decreased 0.6%.

Gross profit margin in the Dollar Tree segment increased to 34.2% during the 13 weeks ended August 3, 2024 from 33.4% during the same period last year due to an 80 basis point decrease in cost of sales.

The cost of sales rate decreased to 65.8% during the 13 weeks ended August 3, 2024 from 66.6% during the same period last year primarily due to lower freight costs, partially offset by increased sales of higher cost consumable merchandise and increased occupancy costs resulting from the loss of leverage from the low single-digit comparable store net sales increase.

Gross profit margin in the Dollar Tree segment increased to 34.8% during the 26 weeks ended August 3, 2024 from 34.4% during the same period last year due to a 40 basis point decrease in cost of sales.

The cost of sales rate decreased to 65.2% during the 26 weeks ended August 3, 2024 from 65.6% during the same period last year primarily due to lower freight costs, partially offset by increased sales of higher cost consumable merchandise, increased shrink costs resulting from unfavorable inventory results, increased occupancy costs resulting from the loss of leverage from the low single-digit comparable store net sales increase and higher distribution costs.

Operating income margin for the Dollar Tree segment decreased to 8.4% during the 13 weeks ended August 3, 2024 from 10.3% 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 270 basis points primarily due to unfavorable development of general liability claims, higher depreciation expense from store investments, temporary labor to support our multi-price rollout, higher utilities costs, and loss of leverage from the low single-digit comparable store net sales increase.

Operating income margin for the Dollar Tree segment decreased to 10.5% during the 26 weeks ended August 3, 2024 from 12.0% 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 195 basis points primarily due to unfavorable development of general liability claims, higher depreciation expense from store investments, temporary labor to support our multi-price rollout, higher utilities costs, 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

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

13 Weeks Ended 26 Weeks Ended

(dollars in millions) August 3, 2024 July 29, 2023 Percentage Change August 3, 2024 July 29, 2023 Percentage Change

Net sales $ 3,307.2 $ 3,446.7 (4.0) % $ 6,768.0 $ 6,834.5 (1.0) %

1 unchanged sentence

Gross profit margin 24.9 % 24.4 % 0.5 % 25.0 % 24.6 % 0.4 %

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.

Operating income (loss) $ (14.6) $ 11.8 (223.7) % $ 22.3 $ 20.6 8.3 %

Operating income (loss) margin (0.4) % 0.3 % (0.7) % 0.3 % 0.3 % — %

Net sales for the Family Dollar segment decreased $139.5 million, or 4.0%, during the 13 weeks ended August 3, 2024 compared to the same period last year resulting from approximately 655 stores closed under the portfolio optimization review since the same period last year, and a decrease in comparable store net sales of 0.1%.

Net sales at non-comparable stores totaled $128.7 million and included $10.7 million of sales from the stores that were closed under the portfolio optimization review in the second quarter of this year.

Customer traffic increased 0.7% 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.

Net sales for the Family Dollar segment decreased $66.5 million, or 1.0%, during the 26 weeks ended August 3, 2024 compared to the same period last year resulting from approximately 655 stores closed under the portfolio optimization review since the same period last year.

Comparable store net sales were flat.

Net sales at non-comparable stores totaled $445.3 million and included $189.9 million of sales from the stores that were closed under the portfolio optimization review in the first half of this year.

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

Gross profit margin in the Family Dollar segment increased to 24.9% during the 13 weeks ended August 3, 2024 from 24.4% during the same period last year due to a 50 basis point decrease in cost of sales.

The cost of sales rate decreased to 75.1% during the 13 weeks ended August 3, 2024 from 75.6% during the same period last year primarily due to lower freight costs and lower occupancy costs resulting from the store closures in connection with the portfolio optimization review, partially offset by increased sales of higher cost consumable merchandise, higher distribution costs, and higher dated product markdowns.

Gross profit margin in the Family Dollar segment increased to 25.0% during the 26 weeks ended August 3, 2024 from 24.6% during the same period last year due to a 40 basis point decrease in cost of sales.

The cost of sales rate decreased to 75.0% during the 26 weeks ended August 3, 2024 from 75.4% during the same period last year primarily due to lower freight costs and lower occupancy costs resulting from the store closures in connection with the portfolio optimization review, partially offset by increased sales of higher cost consumable merchandise, higher distribution costs, and higher dated product markdowns.

Operating income (loss) margin for the Family Dollar segment decreased to (0.4)% during the 13 weeks ended August 3, 2024 from 0.3% 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 130 basis points primarily due to higher depreciation expense from store investments, unfavorable development of general liability claims, higher professional fees related to the review of Family Dollar strategic alternatives, and the loss of leverage from the comparable store net sales decrease.

Operating income margin for the Family Dollar segment was 0.3% for the 26 weeks ended August 3, 2024 and remained unchanged compared to the same period last year as a result of an increase in the selling, general and administrative expense rate, offset by the gross profit margin increase noted above.

The selling, general and administrative expense rate increased 40 basis points primarily due to higher depreciation expense from store investments, unfavorable development of general liability claims, higher professional fees related to the review of Family Dollar strategic alternatives, and loss of leverage from the flat comparable store net sales.

These increases were partially offset by a decrease in legal costs as the prior year included a $30.0 million accrual for DC 202-related legal matters.

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 13 weeks ended May 4, 2024 and April 29, 2023:

The following table compares cash flow-related information for the 26 weeks ended August 3, 2024 and July 29, 2023:

26 Weeks Ended

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

(in millions) August 3, 2024 July 29, 2023

Net cash provided by (used in):

2 unchanged sentences

Financing activities (164.9) (272.2)

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.

Net cash provided by operating activities increased $78.8 million primarily due to higher current year earnings, excluding non-cash items.

In addition, an increase in accounts payable was partially offset by inventory levels decreasing at a lower rate compared to the prior year and other changes in operating assets and liabilities.

Net cash used in investing activities increased $169.0 million primarily due to higher capital expenditures.

Net cash used in financing activities decreased $107.3 million primarily due to borrowings under our commercial paper program in the current year, partially offset by an increase in stock repurchases.

At August 3, 2024, our long-term borrowings were $3.45 billion, of which $1.0 billion matures in May 2025, 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.

As of August 3, 2024, $250.0 million principal amount of notes were outstanding under the commercial paper program.

Additionally, we have $300.0 million in trade letters of credit with various financial institutions, under which $7.4 million was committed to letters of credit issued for routine purchases of imported merchandise as of August 3, 2024.

We repurchased 3,283,837 and 1,728,713 shares of common stock on the open market at a cost of $403.6 million and $252.0 million, including applicable excise tax, during the 26 weeks ended August 3, 2024 and July 29, 2023, respectively.

At August 3, 2024, we had $952.4 million remaining under our existing $2.5 billion Board repurchase authorization.

Critical Accounting Estimates and Assumptions

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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