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Item 7. Management’s Discussion and Analysis

2025-03-26 compared with 2024-03-20 · 217 added, 239 removed, 144 unchanged (76% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section of Form 10-K generally discusses fiscal 2023 and fiscal 2022 events and results, and year-to-year comparisons between fiscal 2023 and fiscal 2022.

Discussions of fiscal 2021 items and year-to-year comparisons between fiscal 2022 and fiscal 2021 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended January 28, 2023.

In Management’s Discussion and Analysis, we explain the general financial condition and the results of operations for our company, including, factors that affect our business, analysis of annual changes in certain line items in the consolidated financial statements, performance of each of our operating segments, expenditures incurred for capital projects and sources of funding for future expenditures.

In Management’s Discussion and Analysis, we explain the general financial condition and the results of operations for our company, including, factors that affect our business, analysis of annual changes in certain line items in the consolidated financial statements, expenditures incurred for capital projects and sources of funding for future expenditures.

As you read Management’s Discussion and Analysis, please refer to our consolidated financial statements and related notes, included in “ Item 8.

Financial Statements and Supplementary Data ” of this Form 10-K.

We are a leading operator of more than 16,700 retail discount stores and we 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.

During fiscal 2024, the Family Dollar business met the held for sale and discontinued operations accounting criteria.

Accordingly, the results of operations of the Family Dollar business are reported as discontinued operations in the accompanying Consolidated Statements of Operations for all periods presented and the related assets and liabilities are classified as assets and liabilities of discontinued operations in the accompanying Consolidated Balance Sheets.

Unless otherwise noted, all amounts, percentages and discussions below reflect only the results of operations and financial condition of our continuing operations.

We are a leading operator of more than 8,800 retail discount stores, as of February 1, 2025, offering merchandise predominantly at the opening price point of $1.25, with additional offerings at higher price points.

Our net sales are derived from the sale of merchandise.

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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 preferences and changes in the product assortment, pricing, or quality.

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

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We include sales from stores expanded, relocated or remodeled during the year 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 (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.

Annual Results

Financial highlights for the fiscal year ended February 3, 2024, as compared to the fiscal year ended January 28, 2023, include:

• Net sales increased 8.0% to $30,581.6 million, due to a 4.6% enterprise-wide comparable store net sales increase and net sales of $1,184.5 million at non-comparable stores.

The 53 rd week in fiscal 2023 accounted for $559.3 million of the total net sales increase.

• Gross profit increased 4.3% to $9,309.6 million as a result of our net store growth and the 53rd week.

Gross profit, as a percentage of net sales, decreased 110 basis points to 30.4%, primarily due to higher shrink, distribution and markdown costs, partially offset by lower freight costs and occupancy costs.

Excluding $86.2 million of distribution and markdown costs related to the store portfolio optimization review, gross profit, as a percentage of net sales, decreased 80 basis points.

• Selling, general and administrative expenses increased $3,514.5 million or 52.5%, primarily due to a $1,069.0 million non-cash goodwill impairment charge, a $950.0 million non-cash trade name impairment charge, a $503.9 million non-cash store asset impairment charge, and $56.7 million in DC 202-related litigation charges.

Stores that were converted from Family Dollar stores to Dollar Tree stores 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 Dollar Tree brand.

Additionally, 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.

2024 Financial Highlights

Financial highlights for the fiscal year ended February 1, 2025, as compared to the fiscal year ended February 3, 2024, include:

• Net sales increased 4.7% to $17,565.8 million, due to a 1.8% comparable store net sales increase and net sales of $1.1 billion at non-comparable stores.

The 53 rd week in fiscal 2023 accounted for $307.0 million of the total net sales.

• Gross profit increased 4.5% to $6,281.7 million as a result of our net store growth.

Gross profit, as a percentage of net sales, remained unchanged in fiscal 2024 as the cost of sales rate is 64.2% in both fiscal 2024 and 2023.

• Selling, general and administrative expenses, as a percentage of total revenues, increased 220 basis points to 27.5%.

Excluding the impairment and litigation charges noted above, selling, general and administrative expenses, as a percentage of total revenues, increased 125 basis points primarily due to higher store-based payroll expenses, unfavorable development of general liability claims, and higher repairs and maintenance expenses.

• Operating income (loss) was ($881.8) million and as a percentage of total revenues, decreased 1,080 basis points to (2.9)% primarily due to the current year impairments and litigation charges noted above.

Excluding the impairments and litigation charges, the operating income (loss), as a percentage of total revenues, decreased 210 basis points.

• The effective tax rate decreased to (1.0)% compared to 23.5% in the prior year primarily due to the current year goodwill impairment charge which is not tax deductible.

• Net income (loss) was ($998.4) million, or ($4.55) per diluted share, compared to $1,615.4 million, or $7.21 per diluted share.

• Operating income, as a percentage of total revenues, decreased 230 basis points to 8.3%.

• The effective tax rate increased to 24.7% compared to 23.8% in the prior year.

• Income from continuing operations was $1,042.5 million, or $4.83 per diluted share, compared to $1,265.8 million, or $5.76 per diluted share.

Store Activity & Selected Sales Data

At February 1, 2025, 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 in fiscal 2023 was approximately 9,300 selling square feet for the Dollar Tree segment and 9,360 selling square feet for the Family Dollar segment.

A breakdown of store counts and square footage by segment for the years ended February 3, 2024 and January 28, 2023 is as follows:

February 3, 2024 January 28, 2023

Dollar Tree Family Dollar Total Dollar Tree Family Dollar Total

The average size of stores opened in fiscal 2024 was approximately 10,990 selling square feet.

A breakdown of the changes in store count and square footage is as follows:

February 1, 2025 February 3, 2024 January 28, 2023

Beginning 8,415 8,134 8,061

New stores 525 333 131

Re-bannered stores 15 (15) — (5) 9 4

Stores converted from or to Family Dollar 12 15 (5)

Closings (71) (67) (53)

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New stores 5.8 3.1 1.1

Re-bannered stores 0.1 (0.1) — — 0.1 0.1

Stores converted from or to Family Dollar* 0.1 0.1 —

Closings (0.6) (0.6) (0.4)

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Ending 78.4 73.1 70.5

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

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 and Note 16 to our consolidated financial statements for additional detail.

*Selling square footage impact of converted 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.

Similarly, stores converted from a Family Dollar store to a Dollar Tree store, or vice versa, are reflected in the table above when they opened or closed, respectively.

Fiscal 2024 and fiscal 2022 which ended on February 1, 2025 and January 28, 2023, respectively, each included 52 weeks.

Fiscal 2023 ended on February 3, 2024 and included 53 weeks, commensurate with the retail calendar.

The 53 rd week in fiscal 2023 added approximately $307.0 million in sales.

Fiscal 2022 and fiscal 2021 which ended on January 28, 2023 and January 29, 2022, respectively, each included 52 weeks.

The percentage change in comparable store net sales for the fiscal year ended February 3, 2024, as compared with the preceding year, is as follows, based on a 53-week comparison for both years:

Year Ended February 3, 2024

Sales Growth Change in Customer Traffic Change in Average Ticket

Consolidated 4.6 % 5.4 % (0.8) %

Dollar Tree Segment 5.8 % 7.4 % (1.5) %

Family Dollar Segment 3.2 % 2.5 % 0.7 %

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

The percentage change in comparable store net sales, as compared with the preceding year, is as follows:

February 1, 2025 February 3, 2024 January 28, 2023

Sales Growth 1.8 % 5.8 % 9.0 %

Change in Customer Traffic 1.6 % 7.4 % (3.9) %

Change in Average Ticket 0.1 % (1.5) % 13.4 %

The comparable store net sales change for the years ended February 1, 2025 and January 28, 2023 is based on a 52-week comparison for both periods included in the calculation.

The comparable store net sales change for the year ended February 3, 2024 is based on a 53-week comparison for both periods included in the calculation.

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

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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 53 weeks ended February 3, 2024 and the 52 weeks ended January 28, 2023 and January 29, 2022 is as follows:

53 Weeks Ended 52 Weeks Ended

February 3, 2024 January 28, 2023 January 29, 2022

Dollar Total Dollar

Net sales per selling square foot for the last three fiscal years is as follows:

52 Weeks Ended 53 Weeks Ended 52 Weeks Ended

February 1, 2025 February 3, 2024 January 28, 2023

Net sales per selling square foot $232 $234 $220

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Strategic Initiatives and Recent Developments

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.

These initiatives include, among others, the following:

We continue to execute on a number of strategic initiatives 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, and in no particular order, the following:

Dollar Tree Merchandising.

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.

Family Dollar Merchandising and Store Portfolio Optimization Review.

Our store design initiatives at Family Dollar provide significantly improved merchandise offerings and establish a minimum number of cooler doors.

We tailor space and assortment to local demographics with emerging formats including H2.5, our primary store format with optimized layout and expanded frozen and refrigerated doors;

larger rural stores where assortments may include Dollar Tree product;

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

As of February 3, 2024, we have more than 1,890 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.

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 this portfolio optimization review, we plan to close 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.

Additionally, we identified approximately 30 underperforming Dollar Tree stores for closure and plan to close each store at the end of the store's current lease term.

In connection with the store portfolio optimization review, we incurred $503.9 million of non-cash impairment charges which are included in “Selling, general and administrative expenses” within the accompanying Consolidated Statements of Operations, comprised of $152.2 million of property, plant and equipment impairment charges and $351.7 million of operating lease right-of-use asset impairment charges.

In addition, we recorded $80.6 million of inventory markdowns and $5.6 million of capitalized distribution cost impairment within “Cost of sales” in the accompanying Consolidated Statements of Operations for the stores expected to close in the first half of fiscal 2024.

We also incurred $4.3 million in third party consulting fees related to the portfolio optimization review which are included in “Selling, general and administrative expenses” within the accompanying Consolidated Statements of Operations.

See Note 16 to our consolidated financial statements for more information.

We are continuing to expand our multi-price product assortment, which began with the introduction of $3 and $5 products 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 at varying price points.

As of February 1, 2025, we had approximately 2,900 multi-price format stores, including approximately 2,600 conversions and 300 new 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 secured the leases for 164 of these stores and substantially all have opened as Dollar Tree stores.

Our Workforce & Our Workplace.

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

Additional initiatives include 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.

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 the in-store experience through renovations and customer service enhancements.

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 distribution center with enhanced automation to improve efficiency, and a new RotaCart delivery process to streamline the truck unloading and store delivery process.

Our supply chain initiatives include expanding and 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.

These investments are expected to negatively impact gross margin in the near-to-mid term.

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 mobile apps, human capital management system and supply chain system.

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

Marietta, Oklahoma Distribution Center.

In the first quarter of fiscal 2024, a tornado destroyed our 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 products to the approximately 600 Marietta-serviced stores, and we believe these efforts have limited and will continue to 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-to-mid 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 of fiscal 2024, contributing to a $45.3 million increase in our general liability claim expenses compared to the prior year second quarter.

For the full year, fiscal 2024 general liability claim expenses increased $20.4 million compared to fiscal 2023.

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

See the “ Critical Accounting Estimates and Assumptions ” later in this “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” 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.

Family Dollar Store Portfolio Optimization and Strategic Alternatives Reviews.

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 February 1, 2025, we had closed approximately 695 stores identified under the portfolio optimization review.

During the second quarter of fiscal 2024, we announced that we had initiated a formal review of strategic alternatives for the Family Dollar business, which could have included among others, a potential sale, spin-off or other disposition of the business.

This strategic alternatives review concluded in the fourth quarter of fiscal 2024 and resulted in the decision to sell the Family Dollar business.

As a result, we concluded the Family Dollar business met the held for sale and discontinued operations accounting criteria.

On March 25, 2025, the Company entered into a definitive agreement to sell the Family Dollar business to Brigade Capital Management, LP and Macellum Capital Management, LLC, for a purchase consideration of $1,007.0 million, subject to a number of adjustments, including with respect to working capital and net indebtedness.

The closing of the transaction is subject to satisfaction of customary closing conditions, including receipt of U.S.

antitrust approval.

Net proceeds are estimated to total approximately $804.0 million.

For information on discontinued operations, refer to Note 2 to our consolidated financial statements under the caption “Assets Held for Sale and Discontinued Operations” and Note 15 .

Results of Operations

Our results of operations and year-over-year changes are discussed in the following section.

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

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

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

Note that the cost of sales rate is calculated by dividing cost of sales by net sales.

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

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

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 years ended February 3, 2024, January 28, 2023 and January 29, 2022:

The following table contains results of operations data for the last three fiscal years:

(in millions, except percentages)

February 3, 2024 January 28, 2023 January 29, 2022

February 1, 2025 February 3, 2024 January 28, 2023

Net sales $ 17,565.8 $ 16,770.3 $ 15,405.7

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Cost of sales 11,284.1 10,761.4 9,630.2

Selling, general and administrative expenses, excluding

Goodwill impairment 9,144.6 6,699.1 5,925.9

Goodwill impairment 1,069.0 — —

Selling, general and administrative expenses 4,832.4 4,245.2 3,682.0

Operating income (loss) (881.8) 2,236.3 1,811.4

Operating income 1,462.0 1,774.5 2,099.3

Interest expense, net 107.5 112.5 127.2

Other expense, net

Income (loss) before income taxes (988.7) 2,110.6 1,632.2

Other (income) expense, net (29.1) 0.1 0.4

Income from continuing operations before income taxes 1,383.6 1,661.9 1,971.7

Provision for income taxes 341.1 396.1 471.6

Net income (loss) $ (998.4) $ 1,615.4 $ 1,327.9

Income from continuing operations $ 1,042.5 $ 1,265.8 $ 1,500.1

Gross profit margin

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27.5 % 25.3 % 23.9 %

Operating income (loss) margin

(2.9) % 7.9 % 6.9 %

Interest expense as a percentage of total revenue

0.3 % 0.4 % 0.7 %

Income (loss) before income taxes as percentage of total revenue (3.2) % 7.4 % 6.2 %

Operating income margin 8.3 % 10.6 % 13.6 %

Interest expense, net as a percentage of total revenue 0.6 % 0.7 % 0.8 %

Income from continuing operations before income taxes as a percentage of total revenue 7.9 % 9.9 % 12.8 %

Effective tax rate

24.7 % 23.8 % 23.9 %

Net income (loss) margin (3.3) % 5.7 % 5.0 %

Income from continuing operations as a percentage of total revenue 5.9 % 7.5 % 9.7 %

Year Ended Percentage Change

(dollars in millions) February 3, 2024 January 28, 2023 January 29, 2022 Fiscal 2023 vs.

(dollars in millions) February 1, 2025 February 3, 2024 January 28, 2023 Fiscal 2024 vs.

Fiscal 2023 vs.

Net sales $ 17,565.8 $ 16,770.3 $ 15,405.7 4.7 % 8.9 %

Comparable store net sales change 1.8 % 5.8 % 9.0 %

The increase in net sales from fiscal 2022 to fiscal 2023 was a result of the comparable store net sales increases in the Dollar Tree and Family Dollar segments, and net sales of $ 1,184.5 million at non-comparable stores.

The 53 rd week in fiscal 2023 accounted for $559.3 million of the total net sales increase.

Enterprise comparable store net sales increased 4.6% in fiscal 2023, as a result of a 5.4% increase in customer traffic, partially offset by a 0.8% decrease in average ticket.

Fiscal 2024 compared to Fiscal 2023

The increase in net sales from fiscal 2023 to fiscal 2024 was a result of the comparable store net sales increase and net sales of $1.1 billion at non-comparable stores.

Comparable store net sales increased 1.8% in fiscal 2024, as a result of a 1.6% increase in customer traffic and a 0.1% increase in average ticket.

This increase is based on a 52-week comparison for both periods.

Comparable store net sales increased 5.8% in the Dollar Tree segment and increased 3.2% in the Family Dollar segment.

The 53 rd week in fiscal 2023 accounted for $307.0 million of the total net sales.

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 in the near-to-mid term.

Fiscal 2023 compared to Fiscal 2022

The increase in net sales from fiscal 2022 to fiscal 2023 was a result of the comparable store net sales increase and net sales of $467.1 million at non-comparable stores.

Comparable store net sales increased 5.8% in fiscal 2023, as a result of a 7.4% increase in customer traffic, partially offset by a 1.5% decrease in average ticket.

This increase is based on a 53-week comparison for both periods.

The 53 rd week in fiscal 2023 accounted for $307.0 million of the total net sales increase.

Year Ended Percentage Change

(dollars in millions) February 3, 2024 January 28, 2023 January 29, 2022 Fiscal 2023 vs.

(dollars in millions) February 1, 2025 February 3, 2024 January 28, 2023 Fiscal 2024 vs.

Fiscal 2023 vs.

Gross profit $ 6,281.7 $ 6,008.9 $ 5,775.5 4.5 % 4.0 %

Gross profit margin 35.8 % 35.8 % 37.5 % — % (1.7) %

The decrease in gross profit margin from fiscal 2022 to fiscal 2023 was a result of the net of the following:

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

• Distribution costs increased approximately 40 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.

• Merchandise cost, which includes freight, increased approximately 30 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.

• Markdowns increased approximately 15 basis points primarily due to $80.6 million of inventory reserves for the approximately 600 Family Dollar stores that are projected to close in the first half of fiscal 2024 as a result of the store portfolio optimization review.

This increase was partially offset by increased markdown allowances on the Family Dollar segment and higher clearance markdowns during the prior year on the Dollar Tree segment in connection with the transition to a higher value assortment at the $1.25 price point.

• Occupancy costs decreased approximately 30 basis points primarily due to leverage from the comparable store net sales increase and leverage from the 53 rd week of sales in the current year.

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

Fiscal 2024 compared to Fiscal 2023

Gross profit margin remained unchanged in fiscal 2024 as the cost of sales rate is 64.2% in both fiscal 2024 and 2023.

Changes in the cost of sales rates consist of lower freight costs, offset by increased sales of higher cost consumable merchandise, increased occupancy costs resulting from the loss of leverage from the low single-digit comparable store net sales increase and the 53 rd week of sales in 2023, higher distribution costs, increased shrink costs resulting from unfavorable inventory results, and increased markdown costs for slow moving items.

Included in freight costs for fiscal 2024 is $25.0 million of duties related to an anti-dumping case for paper plates imported in fiscal 2024.

Fiscal 2023 compared to Fiscal 2022

Gross profit margin decreased in fiscal 2023 due to a 170 basis point increase in cost of sales.

The cost of sales rate increased to 64.2% in fiscal 2023 from 62.5% in fiscal 2022 primarily due to re-investment in value-product assortments after transitioning to the $1.25 price point during the prior year, increased sales of higher cost consumable merchandise, higher distribution costs, increased shrink costs resulting from unfavorable inventory results, partially offset by lower freight costs and decreased occupancy costs resulting from the leverage from the comparable store net sales increase and leverage from the 53 rd week of sales in 2023.

Selling, General and Administrative Expenses

Year Ended Percentage Change

(dollars in millions) February 3, 2024 January 28, 2023 January 29, 2022 Fiscal 2023 vs.

(dollars in millions) February 1, 2025 February 3, 2024 January 28, 2023 Fiscal 2024 vs.

Fiscal 2023 vs.

Selling, general and administrative

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expense rate 27.5 % 25.3 % 23.9 % 2.2 % 1.4 %

The increase in the selling, general and administrative expense rate from fiscal 2022 to fiscal 2023 was primarily due to a $1,069.0 million non-cash goodwill impairment charge, a $950.0 million non-cash trade name impairment charge, and a $503.9 million non-cash store asset impairment charge recorded in fiscal 2023 as further discussed in Note 1 5 and Note 1 6 to our consolidated financial statements.

All of the impairment charges were in the Family Dollar reporting unit with the exception of $10.8 million of store asset impairment charges in the Dollar Tree reporting unit.

In addition, there were $56.7 million in DC 202-related litigation charges in the Family Dollar reporting unit during fiscal 2023.

Excluding the goodwill, trade name, and store asset impairment charges and the DC 202-related litigation charges noted above, the selling, general and administrative expense rate increased 125 basis points in fiscal 2023 as a 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 40 basis points primarily due to unfavorable development of general liability claims, increases in professional fees, and higher information technology system costs, partially offset by Family Dollars’ prior year long-lived asset impairments.

During fiscal 2023, general liability claims began to develop and pay out at amounts significantly higher than anticipated.

As a result, we increased our actuarially determined general liability accruals which led to an approximately 25 basis point increase in our general liability expenses.

See the “ Critical Accounting Estimates and Assumptions ” later in this “ Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information on the calculation of our Self-Insurance Liabilities.

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

• Depreciation and amortization expense 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 and leverage from the 53 rd week of sales in the current year.

Operating Income (Loss)

Fiscal 2024 compared to Fiscal 2023

The selling, general and administrative expense rate increased 220 basis points in fiscal 2024 primarily due to higher depreciation expense from store investments, software impairments and related contract termination costs, temporary labor to support our multi-

price rollout, higher utilities costs, higher stock compensation expense resulting from the accelerated vesting of the former Chief Executive Officer’s option award, the loss of leverage from the low single-digit comparable store net sales increase and the loss of leverage from the 53rd week of sales in the prior year.

The software impairments and related contract termination costs totaled $58.0 million and were related to enterprise merchandising and store system projects that were not fully implemented and were cancelled in connection with the decision to sell the Family Dollar business.

Fiscal 2023 compared to Fiscal 2022

The selling, general and administrative expense rate increased 140 basis points in fiscal 2023 primarily due to wage investments and minimum wage increases in store payroll, unfavorable development of general liability claims, and higher repairs and maintenance expenses as we focus on store conditions for our customers and associates, partially offset by leverage from the comparable store net sales increase and leverage from the 53rd week of sales at the end of fiscal 2023.

Operating Income

Year Ended Percentage Change

(dollars in millions) February 3, 2024 January 28, 2023 January 29, 2022 Fiscal 2023 vs.

Operating income (loss) $ (881.8) $ 2,236.3 $ 1,811.4 (139.4) %

Operating income (loss) margin

(2.9) % 7.9 % 6.9 % (10.8) %

Operating income (loss) margin decreased to (2.9)% in fiscal 2023 compared to 7.9% in fiscal 2022, resulting from the decrease in gross profit margin and the increase in the selling, general and administrative expense rate, as described above.

Excluding the goodwill, trade name, and store asset impairment charges and the DC 202-related litigation charges, operating income margin decreased 210 basis points in fiscal 2023 compared to fiscal 2022.

(dollars in millions) February 1, 2025 February 3, 2024 January 28, 2023 Fiscal 2024 vs.

Fiscal 2023 vs.

Operating income $ 1,462.0 $ 1,774.5 $ 2,099.3 (17.6) % (15.5) %

Operating income margin 8.3 % 10.6 % 13.6 % (2.3) % (3.0) %

Fiscal 2024 compared to Fiscal 2023

Operating income margin decreased to 8.3% in fiscal 2024 compared to 10.6% in fiscal 2023, resulting from the increase in the selling, general and administrative expense rate.

Fiscal 2023 compared to Fiscal 2022

Operating income margin decreased to 10.6% in fiscal 2023 compared to 13.6% in fiscal 2022, resulting from the decrease in gross profit margin and an increase in the selling, general and administrative expense rate.

Interest Expense, Net

Year Ended Percentage Change

(dollars in millions) February 3, 2024 January 28, 2023 January 29, 2022 Fiscal 2023 vs.

(dollars in millions) February 1, 2025 February 3, 2024 January 28, 2023 Fiscal 2024 vs.

Fiscal 2023 vs.

Interest expense, net $ 107.5 $ 112.5 $ 127.2 (4.4) % (11.6) %

Interest expense, net decreased $18.5 million in fiscal 2023 compared to the prior year, resulting from higher interest income on investments.

Fiscal 2024 compared to Fiscal 2023

Interest expense, net decreased $5.0 million in fiscal 2024 compared to the prior year, primarily due to higher interest income on investments.

Fiscal 2023 compared to Fiscal 2022

Interest expense, net decreased $14.7 million in fiscal 2023 compared to the prior year, primarily due to higher interest income on investments.

Provision for Income taxes

Year Ended Percentage Change

(dollars in millions) February 3, 2024 January 28, 2023 January 29, 2022 Fiscal 2023 vs.

(dollars in millions) February 1, 2025 February 3, 2024 January 28, 2023 Fiscal 2024 vs.

Fiscal 2023 vs.

Provision for income taxes $ 341.1 $ 396.1 $ 471.6 (13.9) % (16.0) %

Effective tax rate 24.7 % 23.8 % 23.9 % 0.9 % (0.1) %

The effective tax rate for fiscal 2023 was (1.0)% compared to 23.5% for fiscal 2022, resulting primarily from the current year goodwill impairment charge which is not tax deductible.

Segment Information

We operate more than 16,700 retail discount stores in 48 states and five Canadian provinces.

Our operations are conducted in two reporting business segments:

Dollar Tree and Family Dollar.

We define our segments as those operations whose results our chief operating decision maker (“CODM”) regularly reviews to analyze performance and allocate resources.

We measure the results of our segments using, among other measures, each segment’s net sales, gross profit and operating income (loss).

The CODM reviews these metrics for each of our reporting segments.

We may revise the measurement of each segment’s operating income (loss), as determined by the information regularly reviewed by the CODM.

If the measurement of a segment changes, prior period amounts and balances are reclassified to be comparable to the current period’s presentation.

Corporate, support and other consists primarily of store support center costs and the results of operations for our Summit Pointe property in Chesapeake, Virginia that are considered shared services and therefore these selling, general and administrative costs are excluded from our two reporting business segments.

The Family Dollar segment operating income (loss) includes advertising revenue, which is a component of “Other revenue” in the accompanying Consolidated Statements of Operations.

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

Year Ended Percentage Change

(dollars in millions) February 3, 2024 January 28, 2023 January 29, 2022 Fiscal 2023 vs.

Net sales $ 16,770.3 $ 15,405.7 $ 13,922.1 8.9 %

Gross profit 6,008.9 5,775.5 4,603.6 4.0 %

Gross profit margin 35.8 % 37.5 % 33.1 % (1.7) %

Operating income $ 2,278.8 $ 2,536.0 $ 1,607.0 (10.1) %

Operating income margin 13.6 % 16.5 % 11.5 % (2.9) %

Net sales for the Dollar Tree segment increased $1,364.6 million, or 8.9%, in fiscal 2023 compared to fiscal 2022 due to an increase in comparable store net sales of 5.8%, and net sales of $467.1 million from non-comparable stores.

The 53 rd week in fiscal 2023 accounted for $307.0 million of the total net sales increase.

Customer traffic increased 7.4% and average ticket decreased 1.5% in fiscal 2023 based on a 53-week comparison for both periods.

Gross profit margin for the Dollar Tree segment decreased to 35.8% in fiscal 2023 from 37.5% in fiscal 2022.

The decrease is due to the net of the following:

• Merchandise cost, which includes freight, increased approximately 85 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 65 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 55 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 30 basis points primarily due to leverage from the comparable store net sales increase and leverage from the 53 rd week of sales in the current year.

Operating income margin for the Dollar Tree segment decreased to 13.6% in fiscal 2023 from 16.5% in fiscal 2022 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 22.2% in fiscal 2023 compared to 21.0% in fiscal 2022 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.

• Other selling, general and administrative expenses increased approximately 30 basis points primarily due to unfavorable development of general liability claims.

During fiscal 2023, general liability claims began to develop and pay out at amounts significantly higher than anticipated.

As a result, we increased our actuarially determined general liability accruals which led to an approximately 25 basis point increase in our general liability expenses.

See the “ Critical Accounting Estimates and Assumptions ” later in this “ Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information on the calculation of our Self-Insurance Liabilities.

• Store facility costs increased approximately 25 basis points primarily due to higher repairs and maintenance expenses as we focus on store conditions for our customers and associates, partially offset by leverage from the comparable store net sales increase.

• Depreciation and amortization expense was unchanged as a percentage of total revenue, as capital expenditures related to store renovations and improvements were offset by leverage from the comparable store net sales increase and leverage from the 53 rd week of sales in the current year.

Family Dollar

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

Year Ended Percentage Change

(dollars in millions) February 3, 2024 January 28, 2023 January 29, 2022 Fiscal 2023 vs.

Net sales $ 13,811.3 $ 12,912.5 $ 12,387.7 7.0 %

Gross profit 3,300.7 3,146.4 3,122.3 4.9 %

Gross profit margin 23.9 % 24.4 % 25.2 % (0.5) %

Operating income (loss) $ (2,663.5) $ 127.5 $ 543.1 (2,189.0) %

Operating income (loss) margin

(19.3) % 1.0 % 4.4 % (20.3) %

Net sales for the Family Dollar segment increased $898.8 million, or 7.0%, in fiscal 2023 compared to fiscal 2022 due to a comparable store net sales increase of 3.2%, and net sales of $717.5 million at non-comparable stores.

The 53 rd week in fiscal 2023 accounted for $252.3 million of the total net sales increase.

Customer traffic increased 2.5% and average ticket increased 0.7% in fiscal 2023 based on a 53-week comparison for both periods.

Gross profit margin for the Family Dollar segment decreased to 23.9% in fiscal 2023 compared to 24.4% in fiscal 2022.

The decrease is due to the net of the following:

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

• Markdowns increased approximately 35 basis points primarily resulting from $80.6 million of inventory reserves for the approximately 600 Family Dollar stores that are projected to close in the first half of fiscal 2024 as a result of the store portfolio optimization review.

This increase was partially offset by increased markdown allowances.

• 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 25 basis points primarily due to leverage from the comparable store net sales increase and leverage from the 53 rd week of sales in the current year.

• Merchandise cost, which includes freight, decreased approximately 30 basis points primarily due to lower freight costs, partially offset by cost increases and higher sales of lower margin consumable merchandise.

Operating income (loss) margin for the Family Dollar segment decreased to (19.3)% in fiscal 2023 from 1.0% in fiscal 2022 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 43.2% in fiscal 2023 from 23.4% in fiscal 2022 primarily due to a $1,069.0 million non-cash goodwill impairment charge, a $950.0 million non-cash trade name impairment charge, and a $493.1 million non-cash store asset impairment charge recorded in fiscal 2023 as further discussed in Note 1 5 and Note 1 6 to our consolidated financial statements.

In addition, there were $56.7 million in DC 202-related litigation charges in the Family Dollar reporting unit during fiscal 2023.

Excluding the goodwill, trade name, and store asset impairment charges and the DC 202-related litigation charges noted above, the selling, general and administrative expense rate increased 120 basis points in fiscal 2023 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.

• 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 higher costs in the prior year associated with a product recall related to issues at DC 202.

• Other selling, general and administrative expenses increased approximately 10 basis points primarily due to unfavorable development of general liability claims , partially offset by prior year long-lived asset impairments.

During fiscal 2023, general liability claims began to develop and pay out at amounts significantly higher than anticipated.

As a result, we increased our actuarially determined general liability accruals which led to an approximately 20 basis point increase in our general liability expenses.

See the “ Critical Accounting Estimates and Assumptions ” later in this “ Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information on the calculation of our Self-Insurance Liabilities.

Fiscal 2024 compared to Fiscal 2023

The effective tax rate for fiscal 2024 was 24.7% compared to 23.8% for fiscal 2023, resulting primarily from higher non-deductible executive compensation, increased tax expense in the current year related to restricted stock vesting and lower Work Opportunity Tax Credits.

Fiscal 2023 compared to Fiscal 2022

The effective tax rate for fiscal 2023 was 23.8% compared to 23.9% for fiscal 2022, resulting primarily from higher Work Opportunity Tax Credits, partially offset by higher tax expense in the current year related to restricted stock vesting.

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 years ended February 3, 2024, January 28, 2023 and January 29, 2022:

(in millions) February 3, 2024 January 28, 2023 January 29, 2022

The following table compares our cash flows for the last three fiscal years:

(in millions) February 1, 2025 February 3, 2024 January 28, 2023

Net cash provided by (used in):

Operating activities $ 2,684.5 $ 1,614.8 $ 1,431.5

Investing activities (2,107.6) (1,253.8) (1,019.9)

Financing activities (530.0) (686.8) (836.5)

Operating activities of continuing operations $ 2,193.3 $ 2,400.8 $ 1,417.9

Investing activities of continuing operations (1,249.4) (1,194.8) (643.7)

Financing activities of continuing operations (411.3) (530.0) (686.8)

Operating Activities

Net cash provided by operating activities increased $1,069.7 million in fiscal 2023 compared to fiscal 2022 primarily due to improving inventory levels, partially offset by lower current year earnings, net of non-cash items.

Inventory decreased $335.6 million during fiscal 2023 compared to an increase of $1,085.4 million during fiscal 2022.

Fiscal 2024 compared to Fiscal 2023

Net cash provided by operating activities decreased $207.5 million in fiscal 2024 compared to fiscal 2023 primarily due to lower current year earnings and increased inventory levels, partially offset by increases in trade accounts payable.

The increase in inventory was the result of an increase in store count and inventory from our multi-price initiative.

The increase in trade accounts payable was the result of extensions of payment terms with suppliers implemented in late fiscal 2023.

Fiscal 2023 compared to Fiscal 2022

Net cash provided by operating activities increased $982.9 million in fiscal 2023 compared to fiscal 2022 primarily due to decreases in inventory levels.

Inventory was elevated at the end of fiscal 2022 due to global supply chain issues that resolved in fiscal 2023, resulting in lower payments for inventory.

Investing Activities

Net cash used in investing activities increased $853.8 million in fiscal 2023 compared with fiscal 2022 due to higher capital expenditures in the current year.

Fiscal 2024 compared to Fiscal 2023

Net cash used in investing activities increased $54.6 million in fiscal 2024 compared with fiscal 2023 due to higher capital expenditures in the current year, partially offset by insurance recoveries related to damaged property and equipment at our distribution center in Marietta, Oklahoma as discussed in Note 5 to our consolidated financial statements.

Fiscal 2023 compared to Fiscal 2022

Net cash used in investing activities increased $551.1 million in fiscal 2023 compared with fiscal 2022 due to higher capital expenditures in fiscal 2023.

Financing Activities

Net cash used in financing activities decreased $156.8 million in fiscal 2023 compared to fiscal 2022 primarily due to lower payments for stock repurchases in the current year.

Fiscal 2024 compared to Fiscal 2023

Net cash used in financing activities decreased $118.7 million in fiscal 2024 compared to fiscal 2023 primarily due to lower payments for stock repurchases in fiscal 2024.

Fiscal 2023 compared to Fiscal 2022

Net cash used in financing activities decreased $156.8 million in fiscal 2023 compared to fiscal 2022 primarily due to lower payments for stock repurchases in fiscal 2023.

For detail on our long-term and short-term borrowings and other commitments, refer to the discussion of “Funding Requirements” below, as well as Note 5 and Note 6 to our consolidated financial statements.

Share Repurchases

We repurchased 3,905,599, 4,613,696 and 9,156,898 shares of common stock on the open market in fiscal 2023, fiscal 2022 and fiscal 2021, respectively, for $504.3 million, $647.5 million and $950.0 million, respectively.

At February 3, 2024, we had $1.35 billion remaining under our existing $2.5 billion Board repurchase authorization.

We repurchased 3,283,837, 3,905,599 and 4,613,696 shares of common stock on the open market at a cost of $403.6 million, $504.3 million and $647.5 million, including applicable excise tax, in fiscal 2024, fiscal 2023 and fiscal 2022, respectively.

As of February 1, 2025, we had $952.4 million remaining under our existing $2.5 billion Board repurchase authorization.

Funding Requirements

We expect our cash needs for opening new stores and expanding existing stores in fiscal 2024 to total approximately $650.0 million to $675.0 million, which includes capital expenditures, initial inventory and pre-opening costs.

Our total estimated capital expenditures for fiscal 2024 are approximately $2.1 billion to $2.3 billion, including planned expenditures for our new and expanded stores, store renovations, supply chain and information technology investments, and other property improvements.

We believe that we can adequately fund our working capital requirements and planned capital expenditures for the foreseeable future from net cash provided by operations, our commercial paper program and borrowings under our credit facilities.

Our total estimated capital expenditures for fiscal 2025 are approximately $1.2 billion to $1.3 billion, including planned expenditures for supply chain investments, our new and expanded stores, store renovations, information technology investments, and other property improvements.

We expect our cash needs for opening new stores and expanding existing stores in fiscal 2025 to total approximately $445.0 million, which includes capital expenditures, initial inventory and pre-opening costs.

We believe that we can adequately fund our working capital requirements and planned capital expenditures for the next 12 months and the foreseeable future from net cash provided by operations, our commercial paper program and borrowings under our credit facilities.

Our material contractual obligations consist of long-term and short-term borrowings and related interest payments and operating lease obligations.

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Management’s estimate for self-insurance liabilities could vary from the ultimate loss sustained given the difficulty in predicting future events.

however, historically, the net total of these differences has not had a material effect on our financial condition or results of operations.

Our self-insurance liabilities associated with workers’ compensation, general liability and auto are recorded within “Other current liabilities” and “Other liabilities” in the Consolidated Balance Sheets and amounted to $363.5 million and $318.2 million at February 3, 2024 and January 28, 2023, respectively.

The increase was primarily due to general liability claims beginning to develop and pay out at amounts significantly higher than anticipated, resulting in higher actuarially determined accruals.

Our self-insurance liabilities associated with workers’ compensation, general liability and auto related to continuing operations are recorded within “Other current liabilities” and “Other liabilities” in the accompanying Consolidated Balance Sheets and amounted to $244.3 million and $187.0 million at February 1, 2025 and February 3, 2024, respectively.

Self-insurance liabilities related to discontinued operations totaled $185.0 million and $176.5 million at February 1, 2025 and February 3, 2024, respectively.

The increases were primarily due to general liability claims developing and paying out at amounts significantly higher than anticipated, resulting in higher actuarially determined accruals.

Goodwill and Indefinite-Lived Intangible Assets

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Alternatively, we may bypass the qualitative assessment and proceed directly to performing the quantitative impairment test.

In connection with the fiscal 2023 annual impairment evaluation, management’s qualitative assessment indicated that it was more likely than not that the fair value of the Family Dollar reporting unit was less than its carrying value.

In connection with the fiscal 2024 annual impairment evaluation, management’s qualitative assessment indicated that it was more likely than not that the fair values of the Family Dollar reporting unit and the Family Dollar trade name were less than their carrying values.

There were no indicators that the fair value of the Dollar Tree or Dollar Tree Canada reporting units were less than their carrying value.

Therefore, management performed a quantitative assessment of both the Family Dollar goodwill and trade name.

We estimate the fair value using a combination of a market multiple method and a discounted cash flow method.

Under the market multiple approach, we estimate a fair value based on comparable companies’ market multiples of revenues and earnings before interest, taxes, depreciation and amortization (“EBITDA”) and adjusted for a control premium.

Under the discounted cash flow approach, we project future cash flows which are discounted using a weighted-average cost of capital analysis that reflects current market conditions, adjusted for specific reporting unit risks (primarily the uncertainty of achieving projected operating cash flows), in arriving at the fair value of the reporting unit.

If the carrying amount of a reporting unit exceeds its estimated fair value, an impairment loss is recognized in an amount equal to that excess.

The Family Dollar goodwill and trade name comprise a substantial portion of our goodwill and indefinite-lived intangible assets and management’s judgment utilized in the Family Dollar goodwill and trade name impairment evaluations is critical.

In fiscal 2024, we estimated the fair value of the Family Dollar reporting unit by using market participant assumptions as there was an expected sale price for the business based on negotiations with potential third party buyers.

Based on this fair value, we recognized an impairment loss of $490.5 million which represented the remaining carrying amount of goodwill from the Family Dollar business.

The fiscal 2024 goodwill impairment was driven primarily by a decrease in enterprise value attributed to the Family Dollar business using the expected sale price compared to our carrying value.

Our evaluation of goodwill resulted in an impairment charge of $1,069.0 million in fiscal 2023 related to the Family Dollar reporting unit.

Our evaluation of goodwill did not result in impairment charges being recorded in fiscal 2022.

The Family Dollar trade name comprises a substantial portion of our indefinite-lived intangible assets and management’s judgment utilized in the Family Dollar trade name impairment evaluations is critical.

The computations require management to make estimates and assumptions and actual results may differ significantly, particularly if there are significant adverse changes in the operating environment.

Critical assumptions that are used as part of a quantitative Family Dollar goodwill evaluation include:

• The potential future revenue, EBITDA and cash flows of the reporting unit.

Indefinite-lived intangible assets, such as the Family Dollar trade name, are not subject to amortization but are reviewed at least annually for impairment.

The indefinite-lived intangible asset impairment evaluations are performed by comparing the fair value of the indefinite-lived intangible assets to their carrying values.

We estimate the fair value of our trade name intangible asset based on an income approach using the relief-from-royalty method.

This approach is dependent upon a number of factors, including estimates of future growth and trends, royalty rates, discount rates and other variables.

Royalty rates are derived using future estimates of earnings before interest, and taxes (“EBIT”), and a profit split analysis that examines how EBIT would be allocated to separate parties in an intellectual property license arrangement.

We base our fair value estimates on assumptions we believe to be reasonable, but which are inherently uncertain.

Critical assumptions that are used as part of a tradename evaluation include:

• The potential future revenue, EBIT and cash flows of the reporting unit.

The projections use management’s assumptions about economic and market conditions over the projected period as well as our estimates of future performance and reporting unit revenue, gross margin, expenses and other factors.

The resulting revenue, EBITDA and cash flow estimates are based on our most recent business operating plans, and various growth rates are assumed for years beyond the current business plan period.

These operating plans include anticipated investments in associate wages, improved store execution, enhanced safety and working conditions, increased supply chain efficiencies, competitive pricing, and enhancements to our technology infrastructure.

We believe that the assumptions, estimates and rates used in our fiscal 2023 impairment evaluations are reasonable;

The resulting revenue, EBIT and cash flow estimates are based on our most recent business operating plans, and various growth rates are assumed for years beyond the current business plan period.

We believe that the assumptions, estimates and rates used in our impairment evaluations are reasonable;

however, variations in the assumptions, estimates and rates could result in significantly different estimates of fair value.

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Given current economic conditions, it is possible that the discount rate will fluctuate in the near term.

We engaged third party experts to assist in the determination of the weighted-average cost of capital used to discount the cash flows for our Family Dollar reporting unit.

We engaged third party experts to assist in the determination of the weighted-average cost of capital used to discount the expected income under the relief of royalty method.

The weighted-average cost of capital used to discount the cash flows for our evaluation was 10.5% for our fiscal 2024 analysis.

Our evaluation of goodwill resulted in an impairment charge of $1,069.0 million in fiscal 2023 related to the Family Dollar reporting unit.

Our evaluation of goodwill did not result in impairment charges being recorded in fiscal 2022 or fiscal 2021.

The fiscal 2023 goodwill impairment was driven primarily by the Family Dollar reporting unit’s below plan performance, management’s store portfolio optimization review and the continued refinement of our transformational strategies which impact long-term growth rates between the segments.

Indefinite-lived intangible assets, such as the Family Dollar trade name, are not subject to amortization but are reviewed at least annually for impairment.

The indefinite-lived intangible asset impairment evaluations are performed by comparing the fair value of the indefinite-lived intangible assets to their carrying values.

We estimate the fair value of our trade name intangible asset based on an income approach using the relief-from-royalty method.

This approach is dependent upon a number of factors, including estimates of future growth and trends, royalty rates, discount rates and other variables.

We base our fair value estimates on assumptions we believe to be reasonable, but which are inherently uncertain.

The discount rate includes a premium compared to the discount rate used for the Family Dollar goodwill impairment evaluation due to the inherently higher risk profile of intangible assets compared to the overall reporting unit.

Our evaluation of the Family Dollar trade name resulted in an impairment charge of $950.0 million in fiscal 2023.

Our evaluation of the Family Dollar trade name did not result in impairment charges being recorded during fiscal 2022 or fiscal 2021.

The fiscal 2023 trade name impairment was driven primarily by a decrease in the royalty rate assumption based on lower future growth rates and operating income margin assumptions for the Family Dollar reporting unit.

The discount rate includes a premium due to the inherently higher risk profile of intangible assets.

Our evaluation of the Family Dollar trade name resulted in impairment charges of $1.4 billion in fiscal 2024 and $950.0 million in fiscal 2023.

Our evaluation of the Family Dollar trade name did not result in impairment charges being recorded during fiscal 2022.

The fiscal 2024 trade name impairment was driven primarily by a decrease in the royalty rate assumption based on lower future growth rates and EBIT margin assumptions for the Family Dollar reporting unit.

For additional information related to goodwill and indefinite-lived intangible assets, including the related impairment evaluations, refer to Note 2 to our consolidated financial statements under the caption “Goodwill and Nonamortizing Intangible Assets” and Note 15 .

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Risk Factors ” and elsewhere within this “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.” If our assumptions and related estimates change in the future, we may be required to record impairment charges against earnings in future periods.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.” If our assumptions and related estimates change in the future, we may be required to record additional impairment charges against earnings in future periods.

Any impairment charges that we may take in the future could be material to our results of operations and financial condition.

Assets Held for Sale and Discontinued Operations

A business is classified as held for sale when management having the authority to approve the action commits to a plan to sell the business, the business is available for immediate sale in its present condition and an active program to locate a buyer has been initiated.

Additionally, the sale must be probable to occur during the next 12 months at a price that is reasonable in relation to its current fair value and actions required to complete the plan indicate it is unlikely significant changes to the plan will be made or the plan will be withdrawn.

A business classified as held for sale is recorded at the lower of (i) its carrying amount and (ii) estimated fair value less costs to sell.

When the carrying amount of the business exceeds its estimated fair value less costs to sell, a loss is recognized and updated each reporting period as appropriate.

Assets held for sale are not further depreciated or amortized once such a determination is reached.

The results of operations of businesses classified as held for sale are reported as discontinued operations if the disposal represents a strategic shift that will have a major effect on the entity’s operations and financial results.

When a business is identified for discontinued operations reporting:

(i) results for prior periods are retrospectively reclassified as discontinued operations;

(ii) results of operations are reported in a single line, net of tax, in the consolidated statement of operations;

and (iii) assets and liabilities are reported as held for sale in the consolidated balance sheets in the period in which the business is classified as held for sale.

As previously noted, in fiscal 2024 we initiated a formal review of strategic alternatives for the Family Dollar business.

This strategic alternatives review concluded in the fourth quarter of fiscal 2024 and resulted in the decision to sell the Family Dollar business.

Accordingly, we concluded the assets of the Family Dollar business met the criteria for classification as held for sale.

We determined the ultimate disposal will represent a strategic shift that will have a major effect on our operations and financial results.

As such, the results of Family Dollar are presented as discontinued operations in the accompanying Consolidated Statements of Operations for all periods presented and the assets and liabilities of Family Dollar have been reflected as assets and liabilities of discontinued operations in the accompanying Consolidated Balance Sheets for all periods presented.

The Company has ceased depreciating and amortizing its long-lived assets for Family Dollar which primarily includes right-of-use assets and property and equipment.

The closing of the transaction is subject to satisfaction of customary closing conditions, including receipt of U.S.

antitrust approval.

Net proceeds are estimated to total approximately $804.0 million.

We calculated an estimated loss on classification to held for sale of approximately $3.4 billion, reflecting the write-down of the carrying value of the Family Dollar business to fair value less costs to sell.

The fair value was determined by using market participant assumptions as there was an expected sale price for the business based on negotiations with the buyer.

Costs to sell included estimated incremental, direct costs incurred to transact the sale of the Family Dollar business.

Refer to Note 15 to our consolidated financial statements for additional information.

Summary of Significant Accounting Policies

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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-K

Item 7. Management’s Discussion and Analysis