Our forward-looking statements include, 
without limitation, statements regarding:

•

the potential effect of general business or economic conditions (including 
inflation) on our costs and profitability, including the potential effect of 
future changes in prevailing wage rates and overtime regulations and our plans 
to address these changes, shipping rates, domestic and import freight costs 
(including the effects of potential increases in import freight costs due to 
low sulphur fuel requirements for ships which become effective in January 
2020), fuel costs and wage and benefit costs, consumer spending levels, and 
population, employment and job growth and/or losses in our markets;

•

the actual and potential effect of Section 301 tariffs on Chinese goods imposed 
by the United States Trade Representative;

•

our growth plans, including our plans to add, renovate, re-banner, expand, 
relocate or close stores and any related costs or charges, our anticipated 
square footage increase, and our ability to renew leases at existing store 
locations;

•

the ability to retain key personnel and attract new personnel at Family Dollar 
and Dollar Tree;

•

our anticipated sales, comparable store net sales, net sales growth, gross 
profit margin, earnings and earnings growth, inventory levels and our ability 
to leverage selling, general and administrative and other fixed costs;

•

the outcome and costs of pending or potential litigation or governmental 
investigations;

•

the effect of changes in labor laws, and the effect of the Fair Labor Standards 
Act as it relates to the qualification of our managers for exempt status, 
minimum wage and health care law;

•

the average size of our stores to be added in 2019 and beyond;

•

the effect of our consumable merchandise initiatives, including the increase in 
the number of our stores with freezers and coolers, the increase in the number 
of freezer and cooler doors in H2 stores and the roll-outs of adult beverage 
and Snack Zone, on our results of operations;

•

the net sales per square foot, net sales and operating income of our stores;

•

the benefits, results and effects of the Family Dollar acquisition and 
integration and the combined Company’s plans, objectives, expectations 
(financial or otherwise), including synergies, the cost to achieve synergies, 
and the effect on earnings per share;

•

the effect of changes in tax laws and regulatory interpretations of such laws;

•

our seasonal sales patterns including those relating to the length of the 
holiday selling seasons;

•

the capabilities of our inventory supply chain technology and other systems;

•

the reliability of, and cost associated with, our sources of supply, 
particularly imported goods such as those sourced from China;

•

the capacity, performance and cost of our distribution centers, including 
future automation;

•

our cash needs, including our ability to fund our future capital expenditures 
and working capital requirements and our ability to service our debt 
obligations, including our expected annual interest expense;

•

our expectations regarding competition and growth in our retail sector;

•

our assessment of the materiality and impact on our business of recent 
accounting pronouncements adopted by the Financial Accounting Standards Board;

•

our assessment of the impact on the Company of certain actions by activist 
shareholders and the Company’s potential responses to these actions; and

•

management’s estimates associated with our critical accounting policies, 
including inventory valuation, self-insurance liabilities and valuations for 
impairment analyses. 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 year ended February 2, 2019 and in this Quarterly Report on Form 10-Q.

•

Our profitability is vulnerable to cost increases.

•

Risks associated with our domestic and foreign suppliers, including, among 
others, increased taxes, duties, tariffs or other restrictions on trade 
(including Section 301 tariffs imposed by the United States Trade 
Representative on imported Chinese goods), including our ability to mitigate 
Section 301 tariffs, could adversely affect our financial performance.

•

We have encountered costs and delays in distributing merchandise, such as 
freight cost increases and we expect additional cost increases as a result of 
low sulphur fuel requirements for ships which become effective in January 2020, 
and we could encounter additional disruptions in our distribution network.

•

Integrating Family Dollar’s operations with ours may be more difficult, costly 
or time consuming than expected, including disruptions or the loss of key 
personnel.

•

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

•

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

•

If we are unable to secure our customers’ credit card and confidential 
information, or other private data relating to our associates, suppliers or our 
business, we could be subject to negative publicity, costly government 
enforcement actions or private litigation and increased costs, which could 
damage our business reputation and adversely affect our results of operations 
or business.

•

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

•

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

•

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

•

Litigation may adversely affect our business, financial condition and results 
of operations.

•

Pressure from competitors may reduce our sales and profits.

•

A downturn or changes in economic conditions could impact our sales or 
profitability.

•

Changes in federal, state or local law, including regulations and 
interpretations or guidance thereunder, or our failure to adequately estimate 
the impact of such changes or comply with such laws, could increase our 
expenses, expose us to legal risks or otherwise adversely affect us.

•

The price of our common stock is subject to market and other conditions and may 
be volatile.

•

Our business or the value of our common stock could be negatively affected as a 
result of actions by activist shareholders or by organizations seeking to limit 
the growth of dollar stores or change the mix or price of products we sell.

•

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.

•

Certain provisions in our Articles of Incorporation and Bylaws 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. 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 15,100 retail discount stores and we conduct our 
operations in two reporting segments. Our Dollar Tree segment is the leading 
operator of discount variety stores offering merchandise at the fixed price 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 or adding new stores through mergers or 
acquisitions. 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.

At August 3, 2019, we operated stores in 48 states and the District of 
Columbia, as well as stores in five Canadian provinces.

Stores are included as re-banners when they close or open, respectively. 
Comparable store net sales for Dollar 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 26 weeks ended August 3, 2019 was 
approximately 8,580 selling square feet for the Dollar Tree segment and 7,670 
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. For the 13 weeks ended August 3, 2019, comparable store 
net sales increased 2.4% on a constant currency basis. Constant currency basis 
refers to the calculation excluding the impact of currency exchange rate 
fluctuations. We calculated the constant currency basis increase by translating 
the current year quarter’s comparable store net sales in Canada using the prior 
year second quarter’s currency exchange rates. We believe that the constant 
currency basis provides a more accurate measure of comparable store net sales 
performance. Including the impact of Canadian currency fluctuations, comparable 
store net sales increased the same 2.4% due to increases in average ticket and 
customer count. On a constant currency basis, comparable store net sales 
increased 2.4% in the Dollar Tree segment and increased 2.4% in the Family 
Dollar segment for the 13 weeks ended August 3, 2019. Including the impact of 
currency, comparable store net sales in the Dollar Tree segment increased 2.3%. 
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. We believe comparable store net sales continue to be 
positively affected by a number of our Dollar Tree initiatives. We continued 
the roll-out of frozen and refrigerated merchandise to more of our Dollar Tree 
stores in the second quarter of 2019 and as of August 3, 2019, the Dollar Tree 
segment had frozen and refrigerated merchandise in 5,970 stores compared to 
approximately 5,435 stores at August 4, 2018. Over the past year, we rolled out 
a new layout to a number of our Dollar Tree stores, which we call our Snack 
Zone. This layout highlights our immediate consumption snack offerings in the 
front of the store near the checkout areas. As of August 3, 2019, we have this 
layout in approximately 1,630 Dollar Tree stores and we plan to end the year 
with approximately 2,000 Snack Zone stores. We believe these initiatives have 
and will continue to enable us to increase sales and earnings by increasing the 
number of shopping trips made by our customers.

As announced in March 2019, we are currently executing a store optimization 
program for our Family Dollar stores to improve performance. This program 
consists of the following:

•

A roll-out of a new model for both new and renovated Family Dollar stores 
internally known as H2. We tested the H2 model in 2018 on a limited basis with 
positive results. This H2 model has significantly improved merchandise 
offerings, including approximately 20 Dollar Tree $1.00 merchandise sections 
and establishing a minimum number of freezer and cooler doors, throughout the 
store. H2 has increased traffic and provided an average comparable store net 
sales lift in excess of 10% over control stores. H2 performs well in a variety 
of locations, and especially in locations where Family Dollar has been most 
challenged in the past. We started 2019 with approximately 200 H2 stores and as 
of August 3, 2019, we have approximately 1,000 H2 stores. Our plan is to 
renovate at least 1,150 stores to this model in 2019 and we expect an 
accelerated renovation schedule in future years.

•

We plan to close under-performing stores. The normal cadence of Family Dollar 
closings on an annual basis is approximately 75 stores. In 2019 we will 
accelerate the pace of closings to as many as 390 stores and have closed 312 
stores as of August 3, 2019. We expect to incur approximately $24.5 million in 
store closure costs and through the second quarter of 2019, we have incurred 
$19.4 million. In addition to these costs, during the second quarter of 2019 we 
incurred approximately $15.0 million of other store closure costs, primarily 
due to loss on disposal of fixed assets.

•

We plan to re-banner approximately 200 Family Dollar stores to the Dollar Tree 
brand in 2019. As of August 3, 2019, we have re-bannered 151 stores to the 
Dollar Tree brand.

•

Additionally, we plan to install adult beverage product in approximately 1,000 
stores and expand freezers and coolers in approximately 75 stores in 2019. As 
of August 3, 2019, we installed adult beverage product in approximately 250 
stores and expanded freezers and coolers in approximately 70 stores. In fiscal 
2019, in addition to the approximately $39.5 million in store closure costs, we 
estimate that we will incur approximately $30.0 million of incremental 
initiative costs based on project count and velocity of which $21.0 million we 
incurred through August 3, 2019. We expect to incur the remaining $9.0 million 
in the third quarter of 2019. On September 18, 2018, we announced that as part 
of our continuing integration of Family Dollar’s organization and support 
functions, we plan to consolidate our store support centers in Matthews, North 
Carolina and Chesapeake, Virginia to our office tower in the Summit Pointe 
development in Chesapeake, Virginia. Approximately 30 percent of the Matthews 
associates, including more than 50 percent of the officers and directors, 
invited to move to Chesapeake have agreed to do so. We are currently hiring to 
replace the associates who are not moving. We expect the consolidation to be 
completed by the fall of 2019 and we expect to incur pre-tax expense of 
approximately $30.0 million in 2019 in connection with these plans, of which 
approximately $18.4 million was incurred in the first half of fiscal 2019. 
Additionally, the following items have already impacted or could impact our 
business or results of operations during 2019 or in the future:

•

The Office of the United States Trade Representative (USTR) previously imposed 
tariffs under Section 301 against Chinese goods described on Lists 1, 2, and 3 
with an annual trade value of $250 billion. The tariff rate on $200 billion of 
those goods under List 3 increased to 25 percent on May 10, 2019. When the 
tariffs were implemented, approximately nine percent of our products, measured 
by sales volume, were on Lists 1, 2, and 3. To mitigate the potential adverse 
effect of the tariffs, we negotiated price concessions from vendors on certain 
products, canceled orders, changed product sizes and specifications, changed 
our product mix and changed vendors. As a result of our mitigation efforts, we 
believe that we have reduced most of the potential adverse effects of the 
tariffs under Lists 1, 2, and 3 on the Dollar Tree and Family Dollar segments 
through September 2019.

•

Earlier this year, the USTR began a process to impose a tariff on all of the 
$300 billion in Chinese goods which were not previously subject to a tariff 
under Section 301, referred to as List 4 goods. On August 13, 2019, the USTR 
published the final description of products on List 4 and divided the list into 
two parts. Tariffs at the rate of 10 percent on List 4A goods were originally 
scheduled to go into effect September 1, 2019. Tariffs at the rate of 10 
percent on List 4B goods were originally scheduled to go into effect December 
15, 2019. We anticipate that more of our products are on List 4 than Lists 1, 
2, and 3 combined. However, we also believe that most of our List 4 products 
are contained on List 4B and not List 4A.

•

On August 23, 2019, the USTR announced that tariffs on List 1, 2, and 3 
products would increase from 25% to 30% on October 1, 2019, tariffs on List 4A 
products would increase from 10% to 15% on September 1, 2019, and tariffs on 
List 4B products would increase from 10% to 15% on December 15, 2019. We 
estimate that without mitigation

List 4 and the additional 5% tariff on Lists 1, 2 and 3 will cost the Company 
approximately $26 million in additional tariffs between September 1, 2019 and 
December 15, 2019 and approximately $14.7 million between December 15, 2019 and 
January 31, 2020. We are now implementing actions that may mitigate all List 1, 
2, 3, and 4 tariffs. We will continue to assess the future impact of those 
tariffs. We are not able to accurately predict that impact of mitigation until 
we can estimate the success of our current efforts. We can give no assurances 
as to the final scope, duration, or impact of any existing or future tariffs. 
The List 1, 2, 3, and 4 tariffs could have a material adverse effect on our 
business and results of operations next year if we do not mitigate their 
impact.

•

We anticipate higher import freight costs beginning in the third quarter of 
2019 based on our April rate negotiations and the commencement of low sulphur 
fuel requirements for ships in January 2020. We expect that this will result in 
higher costs in future periods as merchandise is sold.

Results of Operations 13 weeks ended August 3, 2019 compared to the 13 weeks 
ended August 4, 2018 Net Sales. Net sales increased $215.0 million, or 3.9%, 
compared with last year’s second quarter, resulting from increases in 
comparable store net sales in the Dollar Tree and Family Dollar segments and 
sales of $141.2 million in new stores, partially offset by lost sales resulting 
from store closures primarily on the Family Dollar segment. Comparable store 
net sales increased 2.4% on a constant currency basis as a result of a 1.7% 
increase in average ticket and a 0.7% increase in customer count. On a constant 
currency basis, comparable store net sales increased 2.4% in the Dollar Tree 
segment and increased 2.4% in the Family Dollar segment for the 13 weeks ended 
August 3, 2019. 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. Gross Profit. Gross profit decreased by $15.4 million to 
$1,648.5 million in the second quarter of 2019 compared to $1,663.9 million in 
the second quarter of 2018. Gross profit margin decreased to 28.7% in the 
current quarter from 30.1% in the same quarter last year. Our gross profit 
margin decrease was the result of the following:

•

Merchandise cost, including freight, increased approximately 60 basis points 
resulting from higher freight costs and higher sales of lower margin consumable 
merchandise at the Family Dollar segment.

•

Markdown expense increased approximately 45 basis points resulting from 
markdowns related to store closures and higher clearance sales in the Family 
Dollar segment.

•

Shrink costs increased approximately 25 basis points due to unfavorable 
inventory results in the Family Dollar segment in the current quarter. Selling, 
General and Administrative Expenses. Selling, general and administrative 
expenses increased to $1,379.6 million in the second quarter of 2019 from 
$1,281.4 million in the same quarter last year, an increase of $98.2 million or 
7.7%. As a percentage of net sales, selling, general and administrative 
expenses increased to 24.0% in the second quarter of 2019 from 23.2% in the 
same quarter last year. The increase in selling, general and administrative 
expenses was a result of the following:

•

Operating and corporate expenses increased approximately 65 basis points 
resulting from increased costs related to the consolidation of our store 
support centers, increased loss on the disposal of fixed assets due to store 
closure write-offs and increased store supplies expense to support the H2 
initiative on the Family Dollar segment.

•

Payroll expenses increased approximately 25 basis points primarily due to 
average hourly rate increases and additional hours, including increased 
temporary help expenses, to support store-level initiatives. These increases 
were partially offset by decreased retirement plan contributions. Operating 
Income. Operating income for the current quarter decreased to $268.9 million 
compared with $382.5 million in the same period last year and operating income 
margin decreased to 4.7% in the current quarter from 6.9% in last year’s second 
quarter. Interest expense, net. Interest expense, net was $40.1 million in the 
second quarter of 2019 compared to $46.1 million in the prior year quarter. The 
decrease is due to our having less debt outstanding as a result of the 
prepayment of the $782.0 million Term Loan Facility in the fourth quarter of 
2018. Income Taxes. Our effective tax rate for the 13 weeks ended August 3, 
2019 was 21.1% compared to 18.9% for the 13 weeks ended August 4, 2018. The 
2019 and 2018 rates reflect reductions of $5.8 million and $8.1 million, 
respectively, in the reserve for uncertain tax positions resulting from statute 
expirations.

23 Table of Contents

26 weeks ended August 3, 2019 compared to the 26 weeks ended August 4, 2018 Net 
Sales. Net sales in the first half of 2019 increased $470.0 million, or 4.2%, 
compared with the first half of 2018, resulting from increases in comparable 
store net sales in the Dollar Tree and Family Dollar segments and sales of 
$370.7 million at new stores, partially offset by lost sales resulting from 
store closures primarily on the Family Dollar segment. Comparable store net 
sales increased 2.3% on a constant currency basis as a result of a 1.7% 
increase in average ticket and a 0.6% increase in customer count. Comparable 
store net sales increased 2.2% when including the impact of Canadian currency 
fluctuations. On a constant currency basis, comparable store net sales 
increased 2.4% in the Dollar Tree segment and increased 2.1% in the Family 
Dollar segment for the 26 weeks ended August 3, 2019. 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. Gross Profit. 
Gross profit increased by $12.2 million to $3,375.7 million in the 26 weeks 
ended August 3, 2019 compared to $3,363.5 million in the 26 weeks ended August 
4, 2018. Gross profit margin decreased to 29.2% in the first half of 2019 from 
30.4% in the first half of 2018. Our gross profit margin decrease was the 
result of the following:

•

Merchandise cost, including freight, increased approximately 50 basis points 
resulting from higher freight costs and increased sales of lower margin 
consumable merchandise, primarily in the Family Dollar segment.

•

Markdown expense increased approximately 20 basis points resulting primarily 
from markdowns related to store closures and higher clearance sales in the 
Family Dollar segment.

•

Shrink costs increased approximately 20 basis points due to unfavorable 
inventory results, primarily in the Family Dollar segment, in the current year.

•

Occupancy costs increased approximately 10 basis points resulting from the 
accelerated amortization of the right-of-use assets for Family Dollar stores we 
closed during 2019.

•

Distribution costs increased approximately 10 basis points resulting primarily 
from higher distribution center payroll costs. Selling, General and 
Administrative Expenses. Selling, general and administrative expenses increased 
to $2,721.3 million in the 26 weeks ended August 3, 2019 from $2,543.4 million 
in the same period last year, an increase of $177.9 million or 7.0%. As a 
percentage of net sales, selling, general and administrative expenses increased 
to 23.6% in the 26 weeks ended August 3, 2019 from 23.0% in the same period 
last year. The increase in selling, general and administrative expenses was a 
result of the net of the following:

•

Operating and corporate expenses increased approximately 45 basis points 
resulting from increased costs related to the consolidation of our store 
support centers, increased loss on the disposal of fixed assets due to store 
closure write-offs and increased store supplies expense to support the H2 
initiative on the Family Dollar segment.

•

Payroll expenses increased approximately 20 basis points primarily due to 
average hourly rate increases and additional hours, including increased 
temporary help expenses, to support store-level initiatives. These increases 
were partially offset by decreased retirement plan contributions.

•

Depreciation and amortization expense decreased approximately 10 basis points 
as a result of certain assets on the Family Dollar segment that were revalued 
upon the 2015 acquisition becoming fully depreciated. Operating Income. 
Operating income for the 26 weeks ended August 3, 2019 decreased to $654.4 
million compared with $820.1 million in the same period last year and operating 
income margin decreased to 5.7% in the first half of 2019 from 7.4% in the 
first half of 2018. Interest expense, net. Interest expense, net was $81.5 
million in the first half of 2019 compared to $276.1 million in the first half 
of the prior year. The decrease is due to the first half of 2018 including 
prepayment premiums totaling $114.3 million and the acceleration of the 
expensing of $41.2 million of amortizable non-cash deferred financing costs 
related to the debt refinancing in the first quarter of 2018. In addition, our 
2018 debt refinancing resulted in lower interest rates and the prepayment of 
the $782.0 million Term Loan Facility in the fourth quarter of 2018 resulted in 
our having less debt outstanding. Income Taxes. Our effective tax rate for the 
26 weeks ended August 3, 2019 was 21.7% compared to 20.3% for the 26 weeks 
ended August 4, 2018. The 2019 and 2018 rates reflect reductions of $5.8 
million and $8.1 million, respectively, in the reserve for uncertain tax 
positions resulting from statute expirations.

Segment Information We operate a chain of more than 15,100 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. 
The Dollar Tree segment is the leading operator of discount variety stores 
offering merchandise at the fixed price of $1.00. The Dollar Tree segment 
includes our operations under the “Dollar Tree” and “Dollar Tree Canada” 
brands, 12 distribution centers in the United States and two distribution 
centers in Canada. As a result, we report comparable store net sales on a 
constant currency basis. The Family Dollar segment operates a chain of general 
merchandise retail discount stores providing consumers with a selection of 
competitively-priced merchandise in convenient neighborhood stores. The Family 
Dollar segment consists of our operations under the “Family Dollar” brand and 
11 distribution centers. We measure the results of our segments using, among 
other measures, each segment’s net sales, gross profit and operating income. 
The CODM reviews these metrics for each of our reporting segments.We may revise 
the measurement of each segment’s operating income, 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. In the current year, we identified Corporate 
and support costs, mainly store support center costs that are considered shared 
services, and excluded these selling, general and administrative costs from our 
two reporting business segments. These costs include operating expenses for our 
store support centers in Chesapeake, Virginia and Matthews, North Carolina. 
During fiscal 2019 we consolidated our Matthews, North Carolina store support 
center with our store support center in Chesapeake, Virginia in our office 
tower in the Summit Pointe development in Chesapeake, Virginia. We continue to 
own our facility in Matthews, North Carolina. Amounts for the 13 and 26 weeks 
ended August 4, 2018 have been reclassified to be comparable to the current 
year presentation.

Dollar Tree

Net sales for the Dollar Tree segment increased 6.8% and 6.6% for the 13 and 26 
weeks ended August 3, 2019, respectively, compared to the same periods last 
year. These increases were due to sales from new stores of $113.3 million and 
$249.4 million for the 13 and 26 weeks ended August 3, 2019, respectively, and 
comparable store net sales increases of 2.4% on a constant currency basis for 
both the 13 and 26 weeks ended August 3, 2019. For both the 13 and 26 weeks 
ended August 3, 2019, customer count increased 1.4% and average ticket 
increased 1.0%. Gross profit margin for the Dollar Tree segment decreased to 
33.8% for the 13 weeks ended August 3, 2019 compared to 34.5% for the same 
period last year as a result of the following:

•

Merchandise cost, including freight, increased approximately 55 basis points 
primarily due to higher freight costs and an increase in lower margin 
consumable sales in the quarter.

•

Distribution costs increased approximately 5 basis points resulting from higher 
distribution center payroll and depreciation costs.

•

Occupancy costs increased approximately 5 basis points resulting from loss of 
leverage from the lower comparable store net sales increase in the current 
year.

•

Shrink increased approximately 5 basis points resulting from unfavorable 
inventory results in the current quarter. Gross profit margin for the Dollar 
Tree segment decreased to 34.1% for the 26 weeks ended August 3, 2019 compared 
to 34.5% for the same period last year as a result of the following:

•

Merchandise cost, including freight, increased approximately 30 basis points 
primarily due to higher freight costs.

•

Distribution costs increased approximately 10 basis points primarily due to 
higher distribution center payroll costs. Operating income margin for the 
Dollar Tree segment decreased to 11.3% for the 13 weeks ended August 3, 2019 as 
compared to 11.9% for the same period last year. The decrease in operating 
income margin in the 13 weeks ended August 3, 2019 was the result of the gross 
profit margin decrease noted above, partially offset by decreased selling, 
general and administrative expenses as a percentage of net sales. Selling, 
general and administrative expenses decreased to 22.5% as a percentage of net 
sales in the 13 weeks ended August 3, 2019 compared to 22.6% for the same 
period last year as a result of the net of the following:

•

Store occupancy costs decreased approximately 15 basis points primarily due to 
decreased electricity costs.

•

Payroll expenses increased approximately 10 basis points due to increased store 
hourly payroll costs resulting from average hourly rate increases and 
additional hours to support store-level initiatives, partially offset by lower 
retirement plan expense. Operating income margin for the Dollar Tree segment 
decreased to 12.3% for the 26 weeks ended August 3, 2019 as compared to 12.7% 
for the same period last year. The decrease in operating income margin in the 
26 weeks ended August 3, 2019 was the result of the gross profit margin 
decrease noted above. Selling, general and administrative expenses were 21.8% 
as a percentage of net sales for both 26-week periods. In the 26 weeks ended 
August 3, 2019, higher store hourly payroll costs due to hourly rate increases 
and additional hours for store-level initiatives were offset by lower 
retirement plan expense and lower utility costs. Family Dollar

Net sales for the Family Dollar segment increased $26.1 million or 0.9% and 
$106.1 million or 1.9% for the 13 and 26 weeks ended August 3, 2019, 
respectively, compared to the same periods last year. These increases were due 
to comparable store net sales increases of 2.4% and 2.1%, respectively and 
$27.9 million and $121.3 million, respectively, of new store sales, partially 
offset by lost sales resulting from store closures that exceed historical 
closure rates as a result of the store optimization program. For the 13 weeks 
ended August 3, 2019, average ticket increased 2.5% and customer count 
decreased 0.1%. For the 26 weeks ended August 3, 2019, average ticket increased 
2.6% and customer count decreased 0.5%. Gross profit for the Family Dollar 
segment decreased $59.1 million or 8.3% for the 13 weeks ended August 3, 2019 
compared to the same period last year. The gross profit margin for Family 
Dollar decreased to 23.3% for the 13 weeks ended August 3, 2019 compared to 
25.7% for the same period in the prior year. The decrease is due to the 
following:

•

Markdown expense increased approximately 100 basis points resulting from store 
closure markdowns and higher clearance sales.

•

Merchandise cost, including freight, increased approximately 95 basis points, 
primarily due to increased sales of higher cost consumable merchandise and 
higher freight costs.

•

Shrink costs increased approximately 45 basis points resulting from unfavorable 
physical inventory results in the current quarter and an increase in the shrink 
accrual rate. Gross profit for the Family Dollar segment decreased $91.9 
million or 6.3% for the 26 weeks ended August 3, 2019 compared to the same 
period last year. The gross profit margin for Family Dollar decreased to 24.1% 
for the 26 weeks ended August 3, 2019 compared to 26.2% for the same period in 
the prior year. The decrease is due to the following:

•

Merchandise cost, including freight, increased approximately 90 basis points, 
primarily due to increased sales of lower margin consumable merchandise and 
higher freight costs.

•

Markdown expense increased approximately 50 basis points resulting from store 
closure markdowns and higher clearance sales.

•

Shrink costs increased approximately 45 basis points resulting from unfavorable 
physical inventory results in the current year and an increase in the shrink 
accrual rate.

•

Distribution costs increased approximately 15 basis points resulting primarily 
from higher merchandising and distribution payroll-related costs.

•

Occupancy costs increased approximately 10 basis points resulting from the 
accelerated amortization of the right-of-use assets for stores we closed during 
2019. Operating income margin for the Family Dollar segment decreased to 0.6% 
for the 13 weeks ended August 3, 2019 as compared to 4.1% for the same period 
last year resulting from the gross margin decrease noted above and an increase 
in selling, general and administrative expenses as a percentage of net sales. 
Selling, general and administrative expenses were 22.7% as a percentage of net 
sales in the 13 weeks ended August 3, 2019 compared to 21.6% for the same 
period last year. The current quarter increase in selling, general and 
administrative expenses as a percentage of net sales was due to the net of the 
following:

•

Operating and corporate expenses increased approximately 95 basis points 
resulting primarily from increased loss on the disposal of fixed assets due to 
store closure write-offs and increased store supplies expense to support the H2 
initiative.

•

Payroll expenses increased approximately 35 basis points primarily due to 
average hourly rate increases and additional hours, including increased 
temporary help expenses, to support store-level initiatives. These increases 
were partially offset by lower workers’ compensation expenses resulting from 
favorable development of prior years’ claims.

•

Depreciation and amortization expense decreased approximately 15 basis points 
as a result of certain assets that were revalued upon the 2015 acquisition 
becoming fully depreciated and/or amortized. Operating income margin for the 
Family Dollar segment decreased to 1.9% for the 26 weeks ended August 3, 2019 
as compared to 4.7% for the same period last year resulting from the gross 
margin decrease noted above and an increase in selling, general and 
administrative expenses as a percentage of net sales. Selling, general and 
administrative expenses were 22.2% as a percentage of net sales in the 26 weeks 
ended August 3, 2019 compared to 21.5% for the same period last year. The 
current year increase in selling, general and administrative expenses as a 
percentage of net sales was due to the net of the following:

•

Operating and corporate expenses increased approximately 45 basis points 
resulting primarily from increased loss on the disposal of fixed assets due to 
store closure write-offs and increased store supplies expense to support the H2 
initiative.

•

Payroll expenses increased approximately 30 basis points primarily due to 
average hourly rate increases and additional hours, including increased 
temporary help expenses, to support store-level initiatives.

•

Store operating costs increased approximately 10 basis points due primarily to 
higher repairs and maintenance costs in the current year.

•

Depreciation and amortization expense decreased approximately 20 basis points 
as a result of certain assets that were revalued upon the 2015 acquisition 
becoming fully depreciated and/or amortized. Liquidity and Capital Resources 
Our business requires capital to build and open new stores, expand our 
distribution network and operate, expand and renovate 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.

Net cash provided by operating activities increased $75.2 million primarily as 
a result of lower cash payments for inventory partially offset by lower current 
year earnings, net of non-cash items. Net cash used in investing activities 
increased $94.0 million primarily due to increased capital expenditures related 
to the Family Dollar segment store optimization program, including H2 
renovations and re-banners. Net cash used in financing activities decreased 
$669.7 million compared with the prior year, primarily due to our debt 
refinancing in 2018, which resulted in debt payments exceeding the proceeds 
from long-term debt by $656.9 million and the payment of $155.3 million of 
debt-issuance and extinguishment costs, partially offset by $139.2 million of 
cash paid in 2019 for stock repurchases. At August 3, 2019, our long-term 
borrowings were $4.3 billion and we had $1.1 billion available under our 
revolving credit facility. We also have $385.0 million in Letter of Credit 
Reimbursement and Security Agreements with various financial institutions, 
under which approximately $278.4 million was committed to letters of credit 
issued for routine purchases of imported merchandise as of August 3, 2019. We 
repurchased 1,842,307 shares of common stock on the open market for 
approximately $188.4 million during the 26 weeks ended August 3, 2019. There 
were no shares repurchased on the open market during the 26 weeks ended August 
4, 2018. As of August 3, 2019, we had $811.6 million remaining under Board 
repurchase authorization.

Quantitative and Qualitative Disclosures About Market Risk. We are exposed to 
various types of market risk in the normal course of our business, including 
the impact of interest rate changes and diesel fuel cost changes. We may enter 
into interest rate or diesel fuel swaps to manage exposure to interest rate and 
diesel fuel price changes. We do not enter into derivative instruments for any 
purpose other than cash flow hedging and we do not hold derivative instruments 
for trading purposes.

Interest Rate Risk At August 3, 2019, our variable rate debt consists of our 
$750.0 million Senior Floating Rate Notes due 2020 (the “Floating Rate Notes”), 
which represents approximately 17% of our total debt. Borrowings under the 
Floating Rate Notes bear interest at a floating rate, reset quarterly, equal to 
LIBOR plus 70 basis points. A 1.0% increase in LIBOR would result in an annual 
increase in interest expense related to our Floating Rate Notes of $7.5 
million.

Legal Proceedings. From time to time, we are defendants in ordinary, routine 
litigation or proceedings incidental to our business, including allegations 
regarding: •employment-related matters; •infringement of intellectual property 
rights; •personal injury/wrongful death claims; •product safety matters, which 
may include product recalls in cooperation with the Consumer Products Safety 
Commission or other jurisdictions; •real estate matters related to store 
leases; and •environmental and safety issues. In addition, we are currently 
defendants in national and state employment-related class and collective 
actions, several thousand employment-related arbitrations and litigation 
concerning injury from products.