DOLLAR TREE, INC. Cautionary Note Regarding Forward-Looking Statements: This document contains "forward-looking statements" as that term is used in the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the fact that they address future events, developments and results and do not relate strictly to historical facts. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. Forward-looking statements include, without limitation, statements preceded by, followed by or including words such as "believe," "anticipate," "expect," "intend," "plan," "view," "target" or "estimate," "may," "will," "should," "predict," "possible," "potential," "continue," "strategy," and similar expressions. For example, our forward-looking statements include, without limitation, statements regarding:
•The impact of delays in receiving imported merchandise from
•Our expectations regarding higher oceanic shipping and domestic freight and fuel costs, and our plans to manage these cost increases;
•Our expectations regarding increased expenses for higher wages and bonuses paid to associates, including increases in the minimum wage by States and localities and potential federal legislation increasing the minimum wage;
•The potential effect of general business or economic conditions on our business, including the effects of inflation, consumer spending levels, and labor shortages and costs in our markets;
•The uncertainty of the impact of the COVID-19 pandemic and public health measures on our business, results of operations, customers and suppliers, including uncertainties surrounding shipping delays and other disruptions in our supply chain or sources of supply;
•The reliability of, and cost associated with, our sources of supply,
particularly imported goods such as those sourced from
•The expected impact of labor disagreements and potential work disruptions or strikes, including at ports located inCalifornia ,Oregon , andWashington , on shipping delays and the availability and cost of merchandise; •The expected and possible outcome, costs, and impact of pending or potential litigation, arbitrations, other legal proceedings or governmental investigations (includingU.S. Food and Drug Administration matters);
•Our plans to renovate existing Family Dollar stores and build new stores in the H2 store format, and the performance of that format on our results of operations;
•Our plans and expectations relating to the introduction of additional price points above$1 in ourDollar Tree stores, including the impact on our gross margins;
•Our plans and expectations relating to new store openings and new store
concepts such as Dollar Tree Plus and our
•Our plans and expectations regarding future strategic investments and the uncertainty with respect to the amount, timing and impact of those investments on our business and results of operations; and •Our expectations regarding higher commodity and other costs associated with the build-out of new stores and the renovation of existing stores, and construction, permitting and inspection delays related to new store openings. A forward-looking statement is neither a prediction nor a guarantee of future results, events or circumstances. You should not place undue reliance on forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. Our forward-looking statements are all based on currently available operating, financial and business information. The outcome of the events described in these forward-looking statements is subject to a variety of factors, including, but not limited to, the risks and uncertainties summarized below and the more detailed discussions in the "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections and elsewhere in our Annual Report on Form 10-K for the fiscal year endedJanuary 29, 2022 , and in this Quarterly Report on Form 10-Q. The following risks could have a material adverse impact on our sales, costs, profitability, financial performance or implementation of strategic initiatives:
•Our profitability is vulnerable to increases in oceanic shipping costs, domestic freight and fuel costs, wage and benefit costs and other operating costs.
•We are experiencing higher costs and disruptions in our distribution network, which have had and could have an adverse impact on our sales, margins and profitability.
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•We may stop selling or recall certain products for safety-related or other issues.
•Our business and results of operations could be materially harmed if we experience a decline in consumer confidence and spending as a result of consumer concerns about the quality and safety of our products.
•Inflation or other adverse change or downturn in economic conditions could impact our sales or profitability.
•If the COVID-19 pandemic and associated disruptions worsen or continue longer than expected, there could be a material adverse impact on our business and results of operations.
•Risks associated with our domestic and foreign suppliers could adversely affect our financial performance.
•Our supply chain may be disrupted by changes in
•Our growth is dependent on our ability to increase sales in existing stores and to expand our square footage profitably.
•Our profitability is affected by the mix of products we sell.
•Pressure from competitors may reduce our sales and profits.
•Our business could be adversely affected if we fail to attract and retain qualified associates and key personnel.
•We may not be successful in implementing or in anticipating the impact of important strategic initiatives, and our plans for implementing such initiatives may be altered or delayed due to various factors, which may have an adverse impact on our business and financial results.
•We could incur losses due to impairment of long-lived assets, goodwill and intangible assets.
•We rely on computer and technology systems in our operations, and any material failure, inadequacy, interruption or security failure of those systems including because of a cyber-attack could harm our ability to effectively operate and grow our business and could adversely affect our financial results. •The potential unauthorized access to customer information may violate privacy laws and could damage our business reputation, subject us to negative publicity, litigation and costs, and adversely affect our results of operations or business.
•Litigation, arbitration and government proceedings may adversely affect our business, financial condition and/or results of operations.
•Changes in laws and government regulations, or our failure to adequately estimate the impact of such changes, could increase our expenses, expose us to legal risks or otherwise adversely affect us.
•Our substantial indebtedness could adversely affect our financial condition, limit our ability to obtain additional financing, restrict our operations and make us more vulnerable to economic downturns and competitive pressures.
•The terms of the agreements governing our indebtedness may restrict our current and future operations, particularly our ability to respond to changes or to pursue our business strategies, and could adversely affect our capital resources, financial condition and liquidity.
•Our variable-rate indebtedness subjects us to interest rate risk, which could cause our annual debt service obligations to increase significantly.
•Our business or the value of our common stock could be negatively affected as a result of actions by shareholders.
•The price of our common stock is subject to market and other conditions and may be volatile.
•Certain provisions in our Articles of Incorporation and By-Laws could delay or
discourage a change of control transaction that may be in a shareholder's best
interest.
We cannot assure you that the results, events and circumstances reflected in the
forward-looking statements will be achieved or occur, and actual results, events
or circumstances could differ materially from those described in the
forward-looking statements. Moreover, new risks and uncertainties emerge from
time to time and it is not possible for us to predict all risks and
uncertainties that could have an impact on our forward-looking statements.
We do not undertake to publicly update or revise any forward-looking statements
after the date of this Form 10-Q, whether as a result of new information, future
events, or otherwise.
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Investors should also be aware that while we do, from time to time, communicate with securities analysts and others, it is against our policy to disclose to them any material, nonpublic information or other confidential commercial information. Accordingly, shareholders should not assume that we agree with any statement or report issued by any securities analyst regardless of the content of the statement or report. Furthermore, we have a policy against confirming projections, forecasts or opinions issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not our responsibility.
Overview
We are a leading operator of more than 16,100 retail discount stores and we conduct our operations in two reporting segments. OurDollar Tree segment is the leading operator of discount variety stores offering merchandise predominantly at the fixed price of$1.25 . Our Family Dollar segment operates general merchandise retail discount stores providing consumers with a selection of competitively-priced merchandise in convenient neighborhood stores. Our net sales are derived from the sale of merchandise. Two major factors tend to affect our net sales trends. First is our success at opening new stores. Second is the performance of stores once they are open. Sales vary at our existing stores from one year to the next. We refer to this as a change in comparable store net sales, because we include only those stores that are open throughout both of the periods being compared, beginning after the first fifteen months of operation. We include sales from stores expanded or remodeled during the period in the calculation of comparable store net sales, which has the effect of increasing our comparable store net sales. The term 'expanded' also includes stores that are relocated. Stores that have been re-bannered are considered to be new stores and are not included in the calculation of the comparable store net sales change until after the first fifteen months of operation under the new brand. AtApril 30, 2022 , we operated stores in 48 states and theDistrict of Columbia , as well as stores in five Canadian provinces. A breakdown of store counts and square footage by segment for the 13 weeks endedApril 30, 2022 andMay 1, 2021 is as follows: 13 Weeks Ended April 30, 2022 May 1, 2021 Dollar Tree Family Dollar Total Dollar Tree Family Dollar Total Store Count: Beginning 8,061 8,016 16,077 7,805 7,880 15,685 New stores 42 70 112 65 41 106 Re-bannered stores (2) 5 3 - - - Closings (13) (17) (30) (3) (16) (19) Ending 8,088 8,074 16,162 7,867 7,905 15,772 Relocations 12 21 33 18 18 36 Selling Square Feet (in millions): Beginning 69.7 59.2 128.9 67.4 57.7 125.1 New stores 0.4 0.6 1.0 0.5 0.4 0.9 Closings (0.1) (0.1) (0.2) - (0.1) (0.1) Relocations - 0.1 0.1 - - - Ending 70.0 59.8 129.8 67.9 58.0 125.9
Stores are included as re-banners when they close or open, respectively.
The average size of stores opened during the 13 weeks endedApril 30, 2022 was approximately 8,580 selling square feet for theDollar Tree segment and 8,800 selling square feet for the Family Dollar segment. We believe that these size stores are in the ranges of our optimal sizes operationally and give our customers a shopping environment which invites them to shop longer, buy more and make return visits. 18
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The percentage change in comparable store net sales on a constant currency basis for the 13 weeks endedApril 30, 2022 , as compared with the preceding year, is as follows: 13 Weeks Ended April 30, 2022 Change in Change in Sales Growth Customer Traffic Average Ticket Consolidated 4.4 % (3.6) % 8.4 % Dollar Tree Segment 11.2 % (3.6) % 15.4 % Family Dollar Segment (2.8) % (3.7) % 1.0 % Constant currency basis refers to the calculation excluding the impact of currency exchange rate fluctuations. We calculated the constant currency basis change by translating the current year's comparable store net sales inCanada using the prior year's currency exchange rates. We believe that the constant currency basis provides a more accurate measure of comparable store net sales performance. Comparable store net sales are positively affected by our expanded and relocated stores, which we include in the calculation, and are negatively affected when we open new stores, re-banner stores or expand stores near existing stores.
Dollar Tree Initiatives
InSeptember 2021 , we announced our new$1.25 price point initiative and we completed the rollout of this initiative to allDollar Tree stores during the first quarter of fiscal 2022, increasing the price point on a majority of our$1 merchandise to$1.25 . To date, the increase in the price point has more than offset the decline in the number of units sold. We expect to see a greater lift in gross margin in the first half of fiscal 2022 as we sell through our existing inventory. During fiscal 2022, we have begun investing in new products and modifying existing products to provide greater value for our customers and increase customer traffic and store productivity.
We are also continuing to implement our Dollar Tree Plus initiative which
introduces products priced at the
After a successful launch of the Instacart platform in the Family Dollar segment, we began testing the online service delivery atDollar Tree stores in the third quarter of fiscal 2021. As ofApril 30, 2022 , the Instacart platform covers nearly7,000 Dollar Tree stores. This enables our customers to shop online and receive same-day delivery without having to visit a store.
We believe that our
Family Dollar Initiatives
We are executing several initiatives in our Family Dollar stores to increase sales. InMarch 2021 , we announced the development of a new combination store format, which we refer to as aCombo Store , that leverages the strengths of theDollar Tree and Family Dollar brands under one roof to serve small towns across the country. We are taking Family Dollar's great value and assortment and blending in selectDollar Tree merchandise categories, creating a new store format targeted for small towns and rural communities with populations of 3,000 to 4,000 residents. As ofApril 30, 2022 , we operated more than 330 Combo Stores. We are also continuing to execute our store optimization programs. Our H2 stores have significantly improved merchandise offerings throughout the store, including the addition ofDollar Tree $1.25 merchandise items and establishing a minimum number of freezer and cooler doors. These stores have higher customer traffic and provide a higher average comparable store net sales lift, when compared to non-renovated stores, in the first year following renovation. H2 stores perform well in a variety of locations and especially in locations where our Family Dollar stores have been most challenged in the past. As ofApril 30, 2022 , we have approximately 3,985 H2 stores.
Based on the success of the
After a successful pilot program in 2020, we entered into a partnership with Instacart inFebruary 2021 , which covers more than 6,000 Family Dollar stores acrossthe United States as ofApril 30, 2022 .
In addition, we added adult beverage to approximately 80 stores in the first quarter of fiscal 2022. We believe the addition of adult beverage to our assortment will drive traffic to our stores.
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Additional Considerations
The following trends or uncertainties have already impacted or could impact our business or results of operations during 2022 or in the future:
•Product Availability. We rely heavily on Trans-Pacific shipping to acquire merchandise for our stores, and we are experiencing significant shipping delays as a result of the shipping capacity shortage which has negatively impacted our sales and the availability of product in the stores. We are also experiencing issues with port congestion and pandemic-related port closings and ship diversions, as well as increased costs for available merchandise. These supply chain issues have been exacerbated by the factory shutdowns that began inChina in the first quarter of 2022 due to the imposition of lockdowns in certain Chinese localities to address a worsening outbreak of COVID-19. In addition, the union collective bargaining agreement that governs the wages and benefits of a large number of longshoremen at ports inCalifornia ,Oregon , andWashington is scheduled to expire onJuly 1, 2022 , and if the parties are unable to agree on a new or extended collective bargaining agreement, there could be work stoppages or strikes that result in additional shipping delays and disruptions which could adversely affect the availability of imported merchandise and increase our costs. If these shipping delays and other supply chain issues do not improve, we believe they will continue to have a material adverse impact on product availability and product mix, and on our sales and merchandise margin. We could also experience higher markdowns. Sales could be negatively impacted if imported goods do not arrive in time to stock our stores, including the timely delivery of adequate levels of seasonal and holiday merchandise. If higher cost domestic goods are substituted for delayed imports, our merchandise margin could be adversely impacted. To address delays in shipments, we are prioritizing product categories for shipment in an effort to obtain seasonal assortments in advance of holiday seasons, adding and evaluating the use of long-term and short-term chartered vessels, and adding alternative sources of supply from North American factories. •Freight Costs. We are experiencing significantly higher international and domestic freight costs as a result of disruptions in the global supply chain. This trend, which accelerated in the second half of fiscal 2021, is likely to continue during fiscal 2022. The combination of increased demand and limited availability of Trans-Pacific shipping capacity has caused spot market prices to increase substantially. We are a large importer of merchandise fromAsia and particularly sensitive to freight costs. Due to these trends, in the first half of fiscal 2022, we expect import and domestic freight to present relatively higher cost pressure as compared to the first half of fiscal 2021. In addition, diesel fuel prices are and are expected to remain significantly higher in fiscal 2022 and may increase further because of international tensions. We are working to reduce our freight costs by using chartered vessels, evaluating and securing long-term contracts with our carriers for vessels dedicated in large part to our needs, and adding alternative sources of supply that do not rely on Trans-Pacific shipping. •Labor Shortage and Wage Increases. We are experiencing a shortage of associates and applicants to fill staffing requirements at our stores and distribution centers due to the current labor shortage affecting businesses. This has adversely affected our stores operations, the operating efficiency of our distribution centers and our ability to transport merchandise from our distribution centers to our stores. The steps we have taken to address the labor shortage include hosting national hiring events, paying sign-on bonuses in our distribution centers, offering enhanced wages in select competitive markets, and paying tuition reimbursement. In 2022, the minimum wage has increased in certain States and localities. In addition, the federal minimum wage may increase depending on the outcome of legislation proposed inCongress . Minimum wage increases in States and localities and wage investments in certain markets are expected to increase our costs by more than$195.0 million in 2022. •Build-out and Construction Costs and Delays. We have experienced higher commodity and other costs associated with the build-out of new stores and the renovation of existing stores. In addition, we have experienced delays in new store openings due to inspection, permitting and contractor delays. We anticipate these increased costs and delays may continue for the foreseeable future. •Impact of COVID-19. The future course of the COVID-19 pandemic, the timing and impact of any governmental responses to future outbreaks and the effectiveness of health measures such as vaccines remains uncertain. As a result, it is challenging for us to predict the future impact of COVID-19 on our business, financial results, customers, suppliers and the broader economies in the locations that we operate as well as the future impact on our supply chain and the global supply chain. •West Memphis Distribution Center. OnFebruary 11, 2022 , theFood and Drug Administration issued Form 483 observations primarily regarding rodent infestation at ourWest Memphis, Arkansas distribution center ("DC 202"), as well as other items that require remediation. During the first quarter of fiscal 2022, we incurred costs totaling$0.13 per diluted share related to the product recall, remediation efforts and asset impairment. In the second quarter of fiscal 2022, we announced plans to close DC 202 and we expect to incur an estimated$0.22 per diluted share for lost sales, freight, merchandise disposal, payroll and legal costs associated with the remediation and closure of the facility. 20
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•Strategic Investments. Building on our current initiatives, we are currently developing plans to make additional multi-year strategic investments across both banners to further position the company for long-term sustained growth. We anticipate that that these investments will relate to four key areas of our business: our associates, our distribution center network and supply chain, our product pricing and value proposition, and our technology infrastructure. Within these areas, the focus of these investments is expected to be on associate wages, improved store execution, enhanced safety and working conditions, increased supply chain efficiencies, competitive pricing at Family Dollar, and enhancements to our systems infrastructure. However, our plans have not been finalized at this time, and there is uncertainty regarding the amount and timing of these investments and the impact of such investments on our future business and results of operations. Results of Operations Our results of operations and period-over-period changes are discussed in the following section. Note that gross profit margin is calculated as gross profit (i.e., net sales less cost of sales) divided by net sales. The selling, general and administrative expense rate and operating income margin are calculated by dividing the applicable amount by total revenue.Net Sales 13 Weeks Ended April 30, May 1, Percentage (dollars in millions) 2022 2021 Change Net sales$ 6,900.1 $ 6,476.8 6.5 % Comparable store net sales change, on a constant currency basis 4.4 % 0.8 % The increase in net sales in the 13 weeks endedApril 30, 2022 was a result of sales of$185.5 million at new stores, and a comparable store net sales increase in theDollar Tree segment, partially offset by a comparable store net sales decrease in the Family Dollar segment. Enterprise comparable store net sales increased 4.4% on a constant currency basis in the 13 weeks endedApril 30, 2022 , as a result of an 8.4% increase in average ticket, partially offset by a 3.6% decrease in customer traffic. Comparable store net sales increased the same 4.4% when including the impact of Canadian currency fluctuations. On a constant currency basis, comparable store net sales increased 11.2% in theDollar Tree segment and decreased 2.8% in the Family Dollar segment. Gross Profit 13 Weeks Ended April 30, May 1, Percentage (dollars in millions) 2022 2021 Change Gross profit$ 2,340.5 $ 1,964.1 19.2 % Gross profit margin 33.9 % 30.3 % 3.6 %
The increase in gross profit margin in the 13 weeks ended
•Merchandise cost, including freight, decreased 365 basis points resulting primarily from higher initial mark-on on both segments and increased sales of higher margin discretionary merchandise on theDollar Tree segment, partially offset by higher freight costs and increased sales of lower margin consumable merchandise on the Family Dollar segment.
•Distribution costs decreased 35 basis points due to leverage from the
comparable store net sales increase on the
•Occupancy costs decreased 15 basis points due to leverage from the comparable store net sales increase.
•Shrink costs increased 10 basis points in the current year quarter resulting from more favorable inventory results in relation to accruals in the prior year quarter. •Markdown costs increased 45 basis points due to higher clearance markdowns resulting from a move to a higher value assortment at the$1.25 price point on theDollar Tree segment and as a result of shipping delays of seasonal merchandise and slow moving inventory items on the Family Dollar segment. 21
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Selling, General and Administrative Expenses
13 Weeks Ended
April 30, May 1, Percentage
(dollars in millions) 2022 2021 Change
Selling, general and administrative
expenses $ 1,611.5 $ 1,447.1 11.4 %
Selling, general and administrative
expense rate 23.3 % 22.3 % 1.0 %
The increase in the selling, general and administrative expense rate in the 13
weeks ended
•Other selling, general and administrative expenses increased 70 basis points primarily due to long-lived asset impairments at the Family DollarWest Memphis, Arkansas distribution center, higher legal fees, including costs related to the reconstitution of the Board of Directors, and higher store supplies expense.
•Store facility costs increased 15 basis points primarily due to costs associated with the removal of product from certain Family Dollar stores in connection with the voluntary retail-level product recall.
•Payroll expenses increased 10 basis points primarily due to minimum wage increases and other investments in store payroll and higher incentive compensation expenses, offset partially by leverage from the comparable store net sales increase.
•Depreciation and amortization expense increased 5 basis points primarily due to
capital expenditures related to store renovations and improvements, partially
offset by leverage from the comparable store net sales increase.
Operating Income
13 Weeks Ended
April 30, May 1, Percentage
(dollars in millions) 2022 2021 Change
Operating income $ 731.5 $ 519.9 40.7 %
Operating income margin 10.6 % 8.0 % 2.6 %
Operating income margin increased to 10.6% for the 13 weeks ended April 30, 2022
compared to 8.0% for the same period last year resulting from the increase in
gross profit margin, partially offset by the increase in the selling, general
and administrative expense rate, as described above.
Interest Expense, Net
13 Weeks Ended
April 30, May 1, Percentage
(dollars in millions) 2022 2021 Change
Interest expense, net $ 34.0 $ 33.0 3.0 %
Interest expense, net increased
Provision for Income Taxes
13 Weeks Ended
April 30, May 1, Percentage
(dollars in millions) 2022 2021 Change
Provision for income taxes $ 161.1 $ 112.4 43.3 %
Effective tax rate 23.1 % 23.1 % - %
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The effective tax rate was 23.1% for both the 13 weeks endedApril 30, 2022 and the comparable prior year period. Higher state tax rates and lower Work Opportunity Tax credits as a percentage of pre-tax income in the current year quarter were offset by higher tax deductions related to restricted stock vesting.
Segment Information
Our operating results for the
The following table summarizes the operating results of theDollar Tree segment: 13 Weeks Ended April 30, May 1, Percentage (dollars in millions) 2022 2021 Change Net sales$ 3,781.8 $ 3,321.3 13.9 % Gross profit 1,534.7 1,118.3 37.2 % Gross profit margin 40.6 % 33.7 % 6.9 % Operating income$ 764.2 $ 400.3 90.9 % Operating income margin 20.2 % 12.1 % 8.1 % Net sales for theDollar Tree segment increased$460.5 million , or 13.9%, for the 13 weeks endedApril 30, 2022 compared to the same period last year. The increase was due to an increase in comparable store net sales of 11.2% and$111.1 million of new store sales. Average ticket increased 15.4% and customer traffic decreased 3.6%. During the 13 weeks endedApril 30, 2022 , we completed the rollout of our$1.25 price point initiative which increased the selling price of the majority of our$1 merchandise to$1.25 . The increase in price point more than offset the decline in the number of units sold during the quarter. Gross profit margin for theDollar Tree segment increased to 40.6% for the 13 weeks endedApril 30, 2022 compared to 33.7% for the same period last year as a result of the net of the following: •Merchandise cost, including freight, decreased 590 basis points primarily due to higher initial mark-on and increased sales of higher margin discretionary merchandise, partially offset by higher freight costs.
•Occupancy costs decreased 80 basis points primarily due to leverage from the comparable store net sales increase.
•Distribution costs decreased 50 basis points due to leverage from the comparable store net sales increase and higher capitalized balances resulting from increases in inventory levels in the current quarter, partially offset by higher hourly wages.
•Markdown costs increased 30 basis points resulting primarily from markdowns for
clearance items as we move to a higher value assortment at the
Operating income margin for theDollar Tree segment increased to 20.2% for the 13 weeks endedApril 30, 2022 from 12.1% for the same period last year as a result of the gross profit margin increase noted above and a decrease in the selling, general and administrative expense rate. The selling, general and administrative expense rate decreased to 20.4% in the 13 weeks endedApril 30, 2022 compared to 21.6% for the same period last year as a result of the net of the following: •Payroll expenses decreased 100 basis points primarily due to leverage from the comparable store net sales increase, partially offset by minimum wage increases and other investments in store payroll as well as higher incentive compensation expenses.
•Store facility costs decreased 25 basis points primarily due to leverage from the comparable store net sales increase.
•Depreciation and amortization expense decreased 10 basis points primarily due to leverage from the comparable store net sales increase.
•Other selling, general and administrative expenses increased 10 basis points
primarily due to higher store supplies expense in connection with the
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Family Dollar
The following table summarizes the operating results of the Family Dollar
segment:
13 Weeks Ended
April 30, May 1, Percentage
(dollars in millions) 2022 2021 Change
Net sales $ 3,118.3 $ 3,155.5 (1.2) %
Gross profit 805.8 845.8 (4.7) %
Gross profit margin 25.8 % 26.8 % (1.0) %
Operating income $ 89.5 $ 211.4 (57.7) %
Operating income margin 2.9 % 6.7 % (3.8) %
Net sales for the Family Dollar segment decreased $37.2 million , or 1.2%, for
the 13 weeks ended April 30, 2022 compared to the same period last year. The
decrease was due to a comparable store net sales decrease of 2.8%, partially
offset by $74.4 million of new store sales. For the 13 weeks ended April 30,
2022 , average ticket increased 1.0% and customer traffic declined 3.7%.
Customers received significant government stimulus dollars in the prior year
quarter. In addition, during the 13 weeks ended April 30, 2022 , approximately
400 stores serviced by the West Memphis, Arkansas distribution center were
temporarily closed in connection with the voluntary retail-level product recall.
The Family Dollar comparable store net sales decrease was 0.8% when excluding
the effect of the store closures.
Gross profit margin for the Family Dollar segment decreased to 25.8% for the 13
weeks ended April 30, 2022 compared to 26.8% for the same period last year. The
decrease is due to the net of the following:
•Markdown costs increased 75 basis points primarily due to higher clearance
markdowns related to the shipping delays in seasonal merchandise and slow moving
inventory items.
•Occupancy costs increased 45 basis points primarily due to loss of leverage from the comparable store net sales decrease and higher real estate tax expenses.
•Shrink expense increased 25 basis points in the current year quarter resulting from more favorable inventory results in relation to accruals in the prior year quarter. •Distribution costs decreased 15 basis points due to higher capitalized balances resulting from increases in inventory levels in the current quarter, partially offset by higher hourly wages.
•Merchandise cost, including freight, decreased 35 basis points primarily due to higher initial mark-on, partially offset by higher freight costs and higher sales of lower margin consumable merchandise.
Operating income margin for the Family Dollar segment decreased to 2.9% for the 13 weeks endedApril 30, 2022 from 6.7% for the same period last year resulting from the gross profit margin decrease noted above and an increase in the selling, general and administrative expense rate. The selling, general and administrative expense rate was 23.0% in the 13 weeks endedApril 30, 2022 compared to 20.2% for the same period last year. The current quarter increase in the selling, general and administrative expense rate was due to the following:
•Payroll expenses increased 90 basis points primarily due to minimum wage increases and other investments in store payroll as well as loss of leverage from the decrease in comparable store net sales.
•Other selling, general and administrative expenses increased 85 basis points primarily due to long-lived asset impairments at theWest Memphis, Arkansas distribution center, loss of leverage from the decrease in comparable store net sales, higher store supplies expense related to store projects as well as higher cost of supplies, and higher legal fees. •Store facility costs increased 65 basis points primarily due to costs associated with the removal of product from certain stores in connection with the voluntary retail-level product recall and loss of leverage from the decrease in comparable store net sales. •Depreciation and amortization expense increased 40 basis points primarily due to loss of leverage from the decrease in comparable store net sales and capital expenditures related to store renovations and improvements. 24
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Liquidity and Capital Resources
Our business requires capital to build and open new stores, expand and renovate existing stores, expand our distribution network and operate our existing stores. Our working capital requirements for existing stores are seasonal in nature and typically reach their peak in the months of September and October. Historically, we have satisfied our seasonal working capital requirements for existing stores and have funded our store opening and distribution network expansion programs from internally generated funds and borrowings under our credit facilities.
The following table compares cash flow-related information for the 13 weeks
ended
13 Weeks Ended
April 30, May 1,
(in millions) 2022 2021
Net cash provided by (used in):
Operating activities $ 538.5 $ 556.2
Investing activities (256.3) (222.8)
Financing activities (49.1) (276.6)
Net cash provided by operating activities decreased $17.7 million primarily due
to higher inventory levels and decreased trade payables, partially offset by
higher current year earnings, net of non-cash items and higher accrued liability
balances.
Net cash used in investing activities increased
Net cash used in financing activities decreased$227.5 million primarily due to$14.2 million of cash paid for stock repurchases in the current year quarter compared to$241.3 million in the prior year quarter. AtApril 30, 2022 , 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$45.9 million . We also have$425.0 million in Letter of Credit Reimbursement and Security Agreements with various financial institutions, under which$330.6 million was committed to letters of credit issued for routine purchases of imported merchandise as ofApril 30, 2022 . We repurchased 89,779 shares of common stock on the open market for$14.2 million during the 13 weeks endedApril 30, 2022 . We repurchased 2,150,572 shares of common stock on the open market for$250.0 million during the 13 weeks endedMay 1, 2021 . Of the shares repurchased during the 13 weeks endedMay 1, 2021 , approximately$8.7 million had not settled as ofMay 1, 2021 and this amount was accrued in the accompanying unaudited condensed consolidated balance sheet as ofMay 1, 2021 . AtApril 30, 2022 , we had$2.5 billion remaining under Board repurchase authorization.
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