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 effect of higher costs and delays in importing merchandise fromAsia , the capacity of our distribution centers to transport delayed goods to the stores on an expedited basis given current labor shortages, and the potential impact on our sales and merchandise margin; •The reliability of, and cost associated with, our sources of supply, particularly imported goods such as those sourced fromAsia and higher cost domestic goods; •Our expectations regarding cost increases, including additional costs in fiscal 2021 as a result of higher shipping and domestic freight and fuel costs, increases in the minimum wage by States and localities, potential federal legislation increasing the minimum wage, and proposals to raise federal corporate tax rates; •The potential effect of general business or economic conditions on our business including the direct and indirect effects of the COVID-19 pandemic, inflation, labor shortages, consumer spending levels, unemployment, the physical and financial health of our customers, the effectiveness and duration of government assistance programs to individuals, households and businesses to support consumer spending, and increased expenses for higher wages and bonuses paid to associates; •Our expectations regarding reductions in COVID-19-related expenses and the level of shrink in fiscal 2021; •Our seasonal and weekly sales patterns and customer demand including those relating to the important holiday selling seasons; •Our plans to renovate existing Family Dollar stores and build new stores in the H2 store format, including an increase in the number of stores with adult beverages, and the performance of that format on our results of operations; •Our plans relating to new store openings and new store concepts such as Dollar Tree Plus! and ourCombination Store format; and •The expected and possible outcome, costs, and impact of pending or potential litigation, arbitrations, other legal proceedings or governmental investigations (including the proceeding by theFood and Drug Administration ). 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 30, 2021 , and in this Quarterly Report on Form 10-Q. The following risks could have a material adverse impact on our sales, costs, profitability, or financial performance: •Our profitability is vulnerable to cost increases such as wages and operating costs. •We may continue to encounter higher costs in our supply chain, including higher shipping, freight and fuel costs, and disruptions in our distribution network including merchandise delays and shortages and labor shortages that could result in lower sales or higher costs for substituted goods. •Risks associated with our domestic and foreign suppliers, including tariffs or restrictions on trade or disruptions in trade arising from the COVID-19 pandemic or otherwise. •Our business and results of operations could be materially harmed if we experience a decline in consumer confidence and spending as a result of continued unfavorable economic conditions, for example because government assistance to households and businesses terminate or are reduced. •A downturn or adverse change in economic conditions, such as inflation, could impact our sales or profitability. 15 -------------------------------------------------------------------------------- Table of Contents •Our supply chain may be disrupted by changes inUnited States trade policy withChina . •We may not be successful in implementing important strategic initiatives, which may have an adverse impact on our business and financial results. •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 and arbitration may adversely affect our business, financial condition and results of operations. •Changes in laws and government regulations, including any increase in federal corporate tax rates, 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. 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. 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. The Impact of COVID-19 As an essential business, our stores and distribution centers have remained open during the pandemic; however, our business trends and financial results in 2020 were materially different than in prior years. DuringMarch 2020 , ourDollar Tree and Family Dollar stores began to experience a significant increase in customer demand and sales of essential products and comparable store net sales increased significantly. However, beginning the last week ofMarch 2020 and continuing into April during the peak of the 2020 Easter selling season, comparable store net sales at ourDollar Tree stores decreased. After the 2020 Easter selling season, in both banners, we experienced an increase in demand for and sales of discretionary products and our seasonal business for the other holidays throughout 2020 was strong. Easter sales were strong in both banners during 2021. Our results of operations for the first quarter of fiscal 2020 include approximately$73.2 million of COVID-19-related expenses; these expenses totaled$7.4 million in the first quarter of fiscal 2021. The future impact of COVID-19 on our customers and our business is difficult to predict. The course of the pandemic, the effectiveness of health measures such as vaccines, and the impact of ongoing economic stabilization efforts is uncertain and government assistance payments may not provide enough funding to support current spending. The American Rescue Plan Act of 2021 ("Rescue Act"), which was enacted onMarch 11, 2021 , providesU.S. government funding to address the continuing impact of COVID-19 on the economy, public health, individuals and businesses. Among other things, the Rescue Act provides for$1,400 direct payments to individuals, continues supplemental unemployment benefits untilSeptember 2021 , extends a prior increase in food stamp benefits, expands the child tax credit and earned income tax credit, provides for rent and utility assistance, and funds COVID-19 vaccinations, testing, treatment and prevention. Given the level of volatility and uncertainty surrounding the future impact of COVID-19 on our customers, suppliers and the broader economies in the locations that we operate as well as uncertainty around the future impact on our supply chain, it is challenging to predict our future operations and financial results. For further discussion of the impacts that COVID-19 had on our financial condition and results of operations during fiscal 2020, refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year endedJanuary 30, 2021 . 16 -------------------------------------------------------------------------------- Table of Contents Overview We are a leading operator of more than 15,700 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 point of$1.00 . 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. AtMay 1, 2021 , 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 endedMay 1, 2021 andMay 2, 2020 is as follows: 13 Weeks Ended May 1, 2021 May 2, 2020 Dollar Tree Family Dollar Total Dollar Tree Family Dollar Total Store Count: Beginning 7,805 7,880 15,685 7,505 7,783 15,288 New stores 65 41 106 67 32 99 Re-bannered stores - - - (3) - (3) Closings (3) (16) (19) (7) (7) (14) Ending 7,867 7,905 15,772 7,562 7,808 15,370 Relocations 18 18 36 15 6 21 Selling Square Feet (in millions): Beginning 67.4 57.7 125.1 64.6 56.7 121.3 New stores 0.5 0.4 0.9 0.6 0.2 0.8 Closings - (0.1) (0.1) (0.1) - (0.1) Relocations - - - 0.1 - 0.1 Ending 67.9 58.0 125.9 65.2 56.9 122.1 Stores are included as re-banners when they close or open, respectively. Comparable store net sales forDollar Tree may be negatively affected when a Family Dollar store is re-bannered near an existing Dollar Tree store. The average size of stores opened during the 13 weeks endedMay 1, 2021 was approximately 8,520 selling square feet for theDollar Tree segment and 9,110 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. The percentage change in comparable store net sales on a constant currency basis for the 13 weeks endedMay 1, 2021 , as compared with the preceding year, is as follows: 13 Weeks Ended May 1, 2021 Change in Change in Sales Growth Customer Traffic Average Ticket Consolidated 0.8 % (8.0) % 9.6 % Dollar Tree Segment 4.7 % (4.4) % 9.5 % Family Dollar Segment (2.8) % (12.7) % 11.3 % 17
-------------------------------------------------------------------------------- Table of Contents 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 We believe that ourDollar Tree initiatives continue to positively affect our comparable store net sales. In fiscal 2019, we introduced our Crafter's Square initiative in more than 650 stores. This offering includes a new expanded assortment of arts and crafts supplies. During fiscal 2020, we expanded this program, completing the roll-out to all of ourDollar Tree stores. The Crafter's Square assortment carries mark-ups which are higher than our average mark-up. Additionally, for more than a year, we have tested a multi-price initiative referred to as Dollar Tree Plus! in more than 100 stores in southwestern markets. Based on learnings from the test, we made modifications to: the mix of products offered to include primarily discretionary items; the displays and signage to drive awareness and excitement to the stores; the price points to focus on the$1 ,$3 and$5 price points; and increase the number of offerings above the$1 price point. As ofMay 1, 2021 , we have this assortment incorporated in more than 240 locations and initial feedback for this iteration is even more positive than in the prior test stores. We have expanded Dollar Tree Plus! into select locations inColorado , as well as states in the southeast such asGeorgia ,Alabama ,Louisiana and the Carolinas. The newest iteration of the concept is experiencing a sales lift of more than double the prior versions. Due to the stronger than forecasted sell-through combined with a potential for delayed shipments of import merchandise, the timing of our reaching our 500 store target may shift. We believe these initiatives have and will continue to enable us to increase sales and earnings. Family Dollar Initiatives We are executing several initiatives in our Family Dollar stores to increase sales. During 2020, we entered into a partnership with Instacart to enable our customers to shop online and receive merchandise without having to visit a store. In fiscal 2019, we executed a store optimization program for our Family Dollar stores to improve performance. Included in that program was a roll-out of a new model for both new and renovated Family Dollar stores internally known as H2. The H2 model has significantly improved merchandise offerings, including approximately 20Dollar Tree $1.00 merchandise sections and establishing a minimum number of freezer and cooler doors, throughout the store. H2 stores have higher customer traffic and provide an average comparable store net sales lift in excess of 10%, 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 ofMay 1, 2021 , we have approximately 2,800 H2 stores. We plan to renovate at least 1,250 stores to this format in fiscal 2021 and also plan to build new stores in this format. In addition, we installed adult beverage product in more than 160 stores in the first quarter of 2021 and plan to add it to 800 stores in total in fiscal 2021. We believe the addition of adult beverage to our assortment will drive traffic to our stores. Building on the success of the H2 format, we have developed aCombination Store which leverages both theDollar Tree and Family Dollar brands 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 ofMay 1, 2021 , we have approximately 60 Combination Stores. Other Items Additionally, the following trends or uncertainties have already impacted or could impact our business or results of operations during 2021 or in the future: •The amount of COVID-19-related costs for premium pay including bonuses, supplies, protective equipment, and similar items was$279.0 million in fiscal 2020. We expect these costs to be approximately$30.0 million in fiscal 2021. •We expect shrink at cost as a percentage of net sales to be significantly lower in fiscal 2021 than fiscal 2020. •In 2021, the minimum wage will increase in certain States and localities and may increase nationally depending on the outcome of future legislation proposed inCongress . Minimum wage increases in States and localities are expected to increase our costs by$45.0 to$50.0 million in 2021. •We are experiencing significantly higher shipping costs as well as shipping delays as a result of Trans-Pacific shipping capacity shortage and port congestion. •We now expect the increase in shipping and domestic freight costs in the last three quarters of fiscal 2021 compared to the last three quarters of fiscal 2020 to be$220.0 to$250.0 million , which is significantly higher than previously estimated. 18 -------------------------------------------------------------------------------- Table of Contents •If the shipping delays do not improve they could potentially have a material adverse impact on our sales or on our merchandise margin. Sales could be negatively impacted if imported goods do not arrive in time to stock our stores. If higher cost domestic goods are substituted for delayed imports, our merchandise margin could be adversely impacted. We also are experiencing a shortage of associates and applicants to fill staffing requirements at our distribution centers due to the current labor shortage affecting retail businesses. Transporting delayed goods to our stores on an expedited basis could be challenging if we are unable to increase the staffing of our distribution centers. Results of Operations Our results of operations and period-over-period changes are discussed in the following section. Note that gross profit margin is calculated as gross profit (i.e., net sales less cost of sales) divided by net sales. The selling, general and administrative expense rate and operating income margin are calculated by dividing the applicable amount by total revenue.Net Sales 13 Weeks Ended May 1, May 2, Percentage (dollars in millions) 2021 2020 Change Net sales$ 6,476.8 $ 6,286.8 3.0 % Comparable store net sales change, on a constant currency basis 0.8 % 7.0 % The increase in net sales in the 13 weeks endedMay 1, 2021 was a result of a comparable store net sales increase in theDollar Tree segment and sales of$169.8 million at new stores, partially offset by a decrease in comparable store net sales in the Family Dollar segment. Enterprise comparable store net sales increased 0.8% on a constant currency basis in the 13 weeks endedMay 1, 2021 , as a result of a 9.6% increase in average ticket and an 8.0% decrease in customer traffic. Comparable store net sales increased 0.9% when including the impact of Canadian currency fluctuations. On a constant currency basis, comparable store net sales increased 4.7% in theDollar Tree segment and decreased 2.8% in the Family Dollar segment. In the first quarter of 2020, at the beginning of the COVID-19 pandemic, the Family Dollar segment had a comparable store net sales increase of 15.5% as we saw an increase in demand for essential products. For the first quarter of 2020, theDollar Tree segment had a decrease in comparable store net sales of 0.9%, resulting from lower traffic resulting from the COVID-19 pandemic which negatively affected Easter sales in theDollar Tree segment. Gross Profit 13 Weeks Ended May 1, May 2, Percentage (dollars in millions) 2021 2020 Change Gross profit$ 1,964.1 $ 1,794.9 9.4 % Gross profit margin 30.3 % 28.5 % 1.8 % The increase in gross profit margin in the 13 weeks endedMay 1, 2021 was a result of the following: •Merchandise cost, including freight, decreased 105 basis points resulting from higher sales of higher margin discretionary merchandise, including higher Easter sales in both segments and improved initial mark-on for the Family Dollar segment, partially offset by higher freight costs. •Shrink costs decreased 55 basis points resulting from favorable inventory results in relation to accruals and decreases in the shrink accrual rates in both the Family Dollar andDollar Tree segments in the current quarter. •Markdown costs decreased 15 basis points primarily due to lower seasonal markdowns in theDollar Tree segment resulting from the improved sell-through of Easter merchandise in the current quarter. •Distribution costs decreased 5 basis points resulting from the prior year quarter including COVID-19 premium pay of$2 per hour for all hourly associates for hours worked beginningMarch 8, 2020 , partially offset by higher distribution center payroll and depreciation costs in theDollar Tree segment. 19 -------------------------------------------------------------------------------- Table of Contents Selling, General and Administrative Expenses 13 Weeks Ended May 1, May 2, Percentage (dollars in millions) 2021 2020 Change Selling, general and administrative expenses$ 1,447.1 $ 1,429.0 1.3 % Selling, general and administrative expense rate 22.3 % 22.7 % (0.4) % The decrease in the selling, general and administrative expense rate in the 13 weeks endedMay 1, 2021 was the result of the net of the following: •Payroll expenses decreased 55 basis points primarily due to lower COVID-19-related store payroll costs, partially offset by deleveraging resulting from the comparable store net sales decrease on the Family Dollar segment. The 13 weeks endedMay 2, 2020 included approximately$57.5 million , or 90 basis points, of store payroll costs for a$2 per hour premium for all store hourly associates for hours worked beginningMarch 8, 2020 , guaranteed bonus payments for store managers and field management bonuses. •Other selling, general and administrative expenses decreased 5 basis points resulting primarily from lower store supplies expense, partially offset by increased inventory service expenses. The prior year quarter included costs for the installation of plexiglass sneeze guards at all registers in our stores and higher costs for masks, gloves and cleaning supplies due to the COVID-19 pandemic. Also in the prior year quarter, inventory service expenses were lower resulting from the postponement of inventories fromMarch 15, 2020 through the end of the quarter due to the COVID-19 pandemic. •Store facility costs increased 20 basis points primarily due to increased repairs and maintenance costs. Higher repairs and maintenance costs included higher snow removal costs in the current year. Also, in the prior year quarter, we postponed certain maintenance activities as a result of the COVID-19 pandemic. Operating Income 13 Weeks Ended May 1, May 2, Percentage (dollars in millions) 2021 2020 Change Operating income$ 519.9 $ 365.9 42.1 % Operating income margin 8.0 % 5.8 % 2.2 % Operating income margin increased to 8.0% for the 13 weeks endedMay 1, 2021 compared to 5.8% for the same period last year as operating income margin in theDollar Tree segment increased 290 basis points and the Family Dollar segment increased 120 basis points. Operating income in the 13 weeks endedMay 2, 2020 included$73.2 million of COVID-19-related expenses. Interest Expense, Net 13 Weeks Ended May 1, May 2, Percentage (dollars in millions) 2021 2020 Change Interest expense, net$ 33.0 $ 40.2 (17.9) %
Interest expense, net decreased
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Provision for Income Taxes
13 Weeks Ended
May 1, May 2, Percentage
(dollars in millions) 2021 2020 Change
Provision for income taxes $ 112.4 $ 77.6 44.8 %
Effective tax rate 23.1 % 23.9 % (0.8) %
The effective tax rate for the 13 weeks ended May 1, 2021 was 23.1% compared to
23.9% for the same period last year resulting from additional tax deductions in
the current year related to restricted stock vesting while last year the
restricted stock vesting resulted in an increase in tax expense. This benefit to
the tax rate was partially offset by higher state tax rates and lower Work
Opportunity Tax Credits as a percentage of pre-tax income in the current year
quarter.
Segment Information
Our operating results for the Dollar Tree and Family Dollar segments and
period-over-period changes are discussed in the following sections.
Dollar Tree
The following table summarizes the operating results of the Dollar Tree segment:
13 Weeks Ended
May 1, May 2, Percentage
(dollars in millions) 2021 2020 Change
Net sales $ 3,321.3 $ 3,077.5 7.9 %
Gross profit 1,118.3 980.7 14.0 %
Gross profit margin 33.7 % 31.9 % 1.8 %
Operating income $ 400.3 $ 282.0 42.0 %
Operation income margin 12.1 % 9.2 % 2.9 %
Net sales for the Dollar Tree segment increased $243.8 million , or 7.9%, for the
13 weeks ended May 1, 2021 compared to the same period last year. The increase
was due to a 4.7% increase in comparable store net sales and sales from new
stores of $112.2 million . Average ticket increased 9.5% and customer traffic
declined 4.4%.
Gross profit margin for the Dollar Tree segment increased to 33.7% for the 13
weeks ended May 1, 2021 compared to 31.9% for the same period last year as a
result of the net of the following:
•Merchandise cost, including freight, decreased 85 basis points primarily due to
increased sales of higher margin discretionary merchandise, including a higher
Easter sell-through, partially offset by higher freight costs. Easter sales were
significantly lower as a result of the COVID-19 pandemic in the first quarter of
2020.
•Shrink costs decreased 50 basis points resulting from favorable inventory
results in relation to accruals in the current quarter and a decrease in the
shrink accrual rate.
•Markdown costs decreased 30 basis points resulting from lower seasonal
markdowns due to the higher Easter sell-through in the current year quarter.
•Occupancy costs decreased 25 basis points as a result of leverage due to the
comparable store net sales increase in the quarter.
•Distribution costs increased 10 basis points resulting from higher distribution
payroll and depreciation costs in the current quarter.
Operating income margin for the Dollar Tree segment increased to 12.1% for the
13 weeks ended May 1, 2021 from 9.2% for the same period last year. The increase
in operating income margin in the 13 weeks ended May 1, 2021 was the result of
the gross margin increase noted above, and a decrease in the selling, general
and administrative expense rate. The selling, general and administrative expense
rate decreased to 21.6% in the 13 weeks ended May 1, 2021 compared to 22.7% for
the same period last year as a result of the net of the following:
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•Payroll expenses decreased 110 basis points primarily due to lower
COVID-19-related store payroll costs and leverage from the comparable store net
sales increase. The 13 weeks ended May 2, 2020 included approximately $33.7
million of store payroll costs for a $2 per hour premium for all store hourly
associates for hours worked beginning March 8, 2020 , guaranteed bonus payments
for store managers and field management bonuses.
•Other selling, general and administrative expenses decreased 5 basis points
resulting primarily from lower store supplies expense, partially offset by
increased inventory service expenses. The prior year quarter included costs for
the installation of plexiglass sneeze guards at all registers in our stores and
higher costs for masks, gloves and cleaning supplies due to the COVID-19
pandemic. Also in the prior year quarter, inventory service expenses were lower
resulting from the postponement of inventories from March 15, 2020 through the
end of the quarter due to the COVID-19 pandemic.
•Store facility costs increased 10 basis points primarily due to higher repairs
and maintenance expenses. Repairs and maintenance expenses were lower in the
prior year due to the cancellation or postponement of certain services at the
onset of the COVID-19 pandemic.
Operating income in the 13 weeks ended May 2, 2020 included $42.2 million of
COVID-19-related expenses.
Family Dollar
The following table summarizes the operating results of the Family Dollar
segment:
13 Weeks Ended
May 1, May 2, Percentage
(dollars in millions) 2021 2020 Change
Net sales $ 3,155.5 $ 3,209.3 (1.7) %
Gross profit 845.8 814.2 3.9 %
Gross profit margin 26.8 % 25.4 % 1.4 %
Operating income $ 211.4 $ 175.5 20.5 %
Operation income margin 6.7 % 5.5 % 1.2 %
Net sales for the Family Dollar segment decreased $53.8 million , or 1.7%, for
the 13 weeks ended May 1, 2021 compared to the same period last year. The
decrease was due to a comparable store net sales decrease of 2.8%, offset
partially by $57.6 million of new store sales. For the 13 weeks ended May 1,
2021 , average ticket increased 11.3% and customer traffic declined 12.7%.
Gross profit margin for the Family Dollar segment increased to 26.8% for the 13
weeks ended May 1, 2021 compared to 25.4% for the same period last year. The
increase is due to the net of the following:
•Merchandise cost, including freight, decreased 85 basis points primarily due to
increased sales of higher margin discretionary merchandise and higher initial
mark-on, offset partially by higher freight costs.
•Shrink expense decreased 60 basis points resulting from favorable physical
inventory results in relation to accruals in the current year quarter and a
decrease in the shrink accrual rate.
•Distribution costs decreased 20 basis points primarily due to lower
COVID-19-related distribution center payroll costs. The 13 weeks ended May 2,
2020 included $2.7 million of incremental distribution center payroll costs,
including a $2 per hour premium for all distribution center hourly associates
for all hours worked beginning March 8, 2020 .
• Occupancy costs increased 15 basis points as a result of deleverage from the
comparable store net sales decrease.
Operating income margin for the Family Dollar segment increased to 6.7% for the
13 weeks ended May 1, 2021 from 5.5% for the same period last year resulting
from the gross margin increase noted above, offset partially by an increase in
the selling, general and administrative expense rate. The selling, general and
administrative expense rate was 20.2% in the 13 weeks ended May 1, 2021 compared
to 19.9% for the same period last year. The current quarter increase in the
selling, general and administrative expense rate was due to the net of the
following:
•Store facility costs increased 25 basis points primarily due to higher snow
removal costs in the current quarter and lower repairs and maintenance expenses
in the prior year due to the cancellation or postponement of certain services at
the onset of the COVID-19 pandemic.
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•Other selling, general and administrative expenses increased 20 basis points
primarily due to deleverage from the comparable store net sales decrease and
lower inventory service expenses in the prior year as a result of postponement
of physical inventories due to the COVID-19 pandemic.
•Depreciation and amortization expense increased 5 basis points primarily due to
deleverage from the comparable store net sales decrease.
•Payroll expenses decreased 25 basis points primarily due to lower
COVID-19-related store payroll costs and lower incentive compensation, partially
offset by deleverage from the comparable store net sales decrease. The 13 weeks
ended May 2, 2020 included $23.8 million , or 75 basis points, of payroll costs
related to the COVID-19 pandemic, including a $2 per hour premium for all store
hourly associates for hours worked beginning March 8, 2020 .
Operating income in the 13 weeks ended May 2, 2020 included $30.4 million of
COVID-19-related expenses.
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 May 1, 2021 and May 2, 2020 :
13 Weeks Ended
May 1, May 2,
(in millions) 2021 2020
Net cash provided by (used in):
Operating activities $ 556.2 $ 959.0
Investing activities (222.8) (235.9)
Financing activities (276.6) 493.6
Net cash provided by operating activities decreased $402.8 million primarily due
to increases in merchandise inventories.
Net cash used in investing activities decreased $13.1 million primarily due to
lower capital expenditures in the current year quarter.
For the 13 weeks ended May 1, 2021 , cash used in financing activities was $276.6
million compared to cash provided by financing activities of $493.6 million for
the 13 weeks ended May 2, 2020 . The cash used in financing activities in the
current quarter is primarily due to $241.3 million of cash paid for stock
repurchases. In the prior year first quarter we preemptively drew $750.0 million
on our Revolving Credit Facility to reduce our exposure to potential short-term
liquidity risk in the banking system as a result of the COVID-19 pandemic, which
was partially offset by the final $250.0 million payment on the Senior Floating
Rate Notes.
At May 1, 2021 , our long-term borrowings were $3.25 billion and we had $1.15
billion available under our Revolving Credit Facility. We also have $390.0
million in Letter of Credit Reimbursement and Security Agreements with various
financial institutions, under which $348.1 million was committed to letters of
credit issued for routine purchases of imported merchandise as of May 1, 2021 .
We repurchased 2,150,572 shares of common stock on the open market for
approximately $250.0 million during the 13 weeks ended May 1, 2021 .
Approximately $8.7 million in share repurchases had not settled as of May 1,
2021 and this amount was accrued in the accompanying unaudited condensed
consolidated balance sheet as of May 1, 2021 . We did not repurchase any shares
of common stock in the 13 weeks ended May 2, 2020 . As of May 1, 2021 , we have
$2.15 billion remaining under Board repurchase authorization.
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