DOLLAR TREE, INC. (DLTR) FY 2022 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section of Form 10-K generally discusses 2021 and 2020 events and results and year-to-year comparisons between 2021 and 2020. Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 that are not included in this Form 10-K can be

26

Table of Contents

found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended January 30, 2021.

In Management’s Discussion and Analysis, we explain the general financial condition and the results of operations for our company, including, factors that affect our business, analysis of annual changes in certain line items in the consolidated financial statements, performance of each of our operating segments, expenditures incurred for capital projects and sources of funding for future expenditures. As you read Management’s Discussion and Analysis, please refer to our consolidated financial statements and related notes, included in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K.

Initiatives and Recent Developments

Our initiatives, as well as other recent developments that have had or are expected to have a significant effect on our operations are listed below:

•Dollar Tree

◦In September 2021, we announced our new $1.25 price point initiative and as of January 29, 2022, we increased the price point on a majority of our $1 merchandise to $1.25 in more than 5,800 legacy Dollar Tree stores. We completed the rollout of this initiative to all Dollar Tree stores during the first quarter of fiscal 2022. 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 the year as we sell through our current inventory. We plan to invest in new products and modify existing products to provide greater value for our customers and increase customer traffic and store productivity.

◦After a successful launch of the Instacart platform in the Family Dollar segment, we began testing the online service delivery at Dollar Tree stores in the third quarter of fiscal 2021. As of January 29, 2022, the Instacart platform covers nearly 7,000 Dollar Tree stores. This enables our customers to shop online and receive same-day delivery without having to visit a store.

◦In fiscal 2021, we continued to implement our Dollar Tree Plus initiative which introduces products priced at the $3 and $5 price points and provides our customers with extraordinary value in discretionary categories. As of January 29, 2022, we have approximately 660 Dollar Tree Plus stores. We plan to accelerate the implementation of the Dollar Tree Plus initiative in fiscal 2022 by adding the concept to an additional 1,500 stores.

◦The roll-out of our Crafter’s Square initiative to all of our Dollar Tree stores was completed during fiscal 2020. The Crafter’s Square assortment carries mark-ups which are higher than our average mark-up.

•Family Dollar

◦In March 2019, we announced plans for a store optimization program for Family Dollar. For fiscal 2019, this program included rolling out a new model for both new and renovated Family Dollar stores, internally known as H2, re-bannering selected stores to the Dollar Tree brand, closing under-performing stores, and installing adult beverages and expanding freezers and coolers in selected stores. Our H2 stores have significantly improved merchandise offerings throughout the store, including the addition of approximately 20 Dollar Tree $1.00 merchandise sections (which transitioned to $1.25 in the first quarter of 2022) 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 of January 29, 2022, we have approximately 3,815 H2 stores and we plan to complete 800 H2 store renovations in fiscal 2022. In addition, we added adult beverage to 275 stores 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, in March 2021, we announced the development of a new combination store format. Combo Stores leverage the strengths of the Dollar 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 select Dollar 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 of January 29, 2022, we had more than 240 Combo Stores in operation. Due to the success of this initiative, we plan to accelerate expansion of the program in fiscal 2022 by adding 400 new, renovated, or relocated Combo Stores.

◦After a successful pilot program in 2020, in February 2021, we entered into a partnership with Instacart, which covers more than 6,000 Family Dollar stores across the United States as of January 29, 2022.

◦In fiscal 2019, the results of our annual goodwill impairment test showed that the fair value of the Family Dollar reporting unit was lower than its carrying value resulting in a $313.0 million non-cash pre-tax and after-tax goodwill impairment charge.

27

Table of Contents

◦In fiscal 2019, we substantially completed the consolidation of the store support center in Matthews, North Carolina to our Summit Pointe development in Chesapeake, Virginia.

◦On February 11, 2022, the FDA issued Form 483 observations primarily regarding rodent infestation at DC 202, as well as other items that require remediation. We initiated a voluntary retail-level product recall of FDA and USDA-regulated products stored and shipped to approximately 400 stores from DC 202 from January 1, 2021 through February 18, 2022, temporarily closed DC 202 for extensive cleaning, temporarily closed approximately 400 affected stores to permit the removal and destruction of inventory subject to the recall, ceased sales of relevant inventory subject to the recall, committed to the FDA to continue to cease the shipment of FDA-regulated products from DC 202 until FDA approval is received, and initiated corrective actions at DC 202 intended to ensure that these issues will not recur when shipment of FDA-regulated products recommences. The recall may have material adverse consequences. See “Item 3. Legal Proceedings” and Note 4 to our consolidated financial statements under the caption “Contingencies” for information concerning the proposed class action complaints filed against Family Dollar related to these matters. We anticipate additional lawsuits of a similar nature related to the recall. See also “Item 1A. Risk Factors”: “Litigation, arbitration and government proceedings may adversely affect our business, financial condition and/or results of operations” and “We may stop selling or recall certain products for safety-related issues.”

•Supply Chain

◦In the third quarter of 2019, we opened a new 1.2 million square foot distribution center in Morrow County, Ohio.

◦In the third quarter of 2020, we opened a new 1.2 million square foot distribution center in Rosenberg, Texas and opened the first phase of our new Ocala, Florida distribution center.

◦The following factors have impacted our operations in fiscal 2021 and we expect these challenges to continue in fiscal 2022:

▪Shipping Delays: 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 have 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. If the shipping delays do not improve they would continue to have a material adverse impact on product availability and product mix, and on our sales and merchandise margin. 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 merchandise for the important Christmas holidays. 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 is likely to continue. 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 from Asia and particularly sensitive to freight costs. Import and domestic freight costs will present cost pressure in the first half of fiscal 2022 due to the annualization of fiscal 2021 rates. In addition, diesel fuel prices are expected to be 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: We are experiencing a shortage of associates and applicants to fill staffing requirements at our distribution centers due to the current labor shortage affecting businesses. This has adversely affected 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 at our distribution centers include hosting national hiring events, paying sign-on bonuses, offering enhanced wages in select competitive markets, which is expected to increase our costs by more than $30.0 million in fiscal 2022, and paying tuition reimbursement.

•Minimum Wage Increases, Wage Investments and Store Labor Shortages

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 in Congress. Minimum wage increases in States and localities and wage investments in certain markets are expected to increase our costs by more than $165.0 million in

28

Table of Contents

2022. We are also experiencing a shortage of associates and applicants to fill staffing requirements at our stores due to the current labor shortage affecting businesses.

•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

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. Our results of operations in fiscal 2020 include approximately $279.0 million of COVID-19-related expenses and these expenses totaled $33.5 million in fiscal 2021 and we expect them to be minimal in fiscal 2022.

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 future consumer spending at levels experienced during fiscal 2020 and 2021. For example, although the American Rescue Plan Act of 2021 (“Rescue Act”), which was enacted on March 11, 2021, provided U.S. government funding to address the continuing impact of COVID-19 on the economy, public health, individuals and businesses, some of the enacted benefits, including $1,400 direct payments to individuals and supplemental unemployment benefits, were temporary and have been discontinued. 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 and the global supply chain, it is challenging to predict our future operations and financial results.

•Long-term Debt

◦During the fourth quarter of 2019, we prepaid $500.0 million of the $750.0 million Senior Floating Rate Notes due 2020 and accelerated the expensing of $0.3 million of deferred financing costs.

◦During the first quarter of 2020, we repaid the remaining $250.0 million outstanding under the Senior Floating Rate Notes.

◦During the first quarter of 2020, 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, all of which was repaid by the end of the third quarter of 2020.

◦During the fourth quarter of 2020, we repaid the $300.0 million 5.00% Senior Notes that we assumed upon the acquisition of Family Dollar.

◦During the fourth quarter of 2021, we refinanced our long-term debt obligations as follows:

▪We completed the registered offering of $800.0 million of 2.65% Senior Notes due 2031 and $400.0 million of 3.375% Senior Notes due 2051 and used the proceeds of the offering to redeem the $1.0 billion 2023 Notes, which resulted in our incurring a $43.8 million prepayment penalty and we accelerated the expensing of $2.7 million of deferred financing and original issue discount costs associated with the 2023 Notes;

▪We entered into a credit agreement for a $1.5 billion revolving credit facility, which replaced our then-existing $1.25 billion revolving credit facility.

For additional information regarding the risks related to our business and operations, including risks relating to the implementation of our Dollar Tree and Family Dollar initiatives, see “Item 1A. Risk Factors.”

Overview

We are a leading operator of more than 16,000 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 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

29

Table of Contents

during the year 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 January 29, 2022, we operated stores in 48 states and the District of Columbia, as well as stores in five Canadian provinces. A breakdown of store counts and square footage by segment for the years ended January 29, 2022 and January 30, 2021 is as follows:

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 in 2021 was approximately 8,760 selling square feet (or about 11,050 gross square feet) for the Dollar Tree segment and 8,880 selling square feet (or about 10,990 gross square feet) for the Family Dollar segment. For 2022, we continue to plan to open stores that are 8,000 - 10,000 selling square feet (or about 10,000 - 12,000 gross square feet) for both the Dollar Tree segment and 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.

Fiscal 2021, fiscal 2020 and fiscal 2019 each included 52 weeks.

The percentage change in comparable store net sales on a constant currency basis for the fiscal year ended January 29, 2022, as compared with the preceding year, is as follows:

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 in Canada 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.

Results of Operations

Our results of operations and year-over-year changes are discussed in the following section. Note that gross profit margin is calculated as gross profit (i.e., net sales less cost of sales) divided by net sales. The selling, general and administrative expense rate and operating income margin are calculated by dividing the applicable amount by total revenue.

30

Table of Contents

Net Sales

The increase in net sales from 2020 to 2021 was a result of sales of $703.4 million at new stores and a comparable store net sales increase in the Dollar Tree segment, partially offset by a net decrease in sales in the current year from stores closed in fiscal 2021 and fiscal 2020.

Enterprise comparable store net sales increased 1.0% on a constant currency basis in 2021, as a result of a 4.5% increase in average ticket and a 3.3% decrease in customer traffic. Comparable store net sales increased 1.1% when including the impact of Canadian currency fluctuations. On a constant currency basis, comparable store net sales increased 2.1% in the Dollar Tree segment and decreased 0.1% in the Family Dollar segment.

In 2020, the Dollar Tree segment had a comparable store net sales increase of 2.2% and the Family Dollar segment had a comparable store net sales increase of 10.5%. The Family Dollar segment increase was due to higher demand for essential products in the early stages of the COVID-19 pandemic and higher demand for discretionary items later in 2020.

Gross Profit

The decrease in gross profit margin from 2020 to 2021 was a result of the net of the following:

•Merchandise cost, including freight, increased 140 basis points in 2021 compared to 2020 resulting primarily from higher freight costs in both segments, partially offset by increased initial mark-on in both segments and higher sales of lower cost discretionary merchandise in the Dollar Tree segment, primarily due to higher Easter seasonal sell-through.

•Markdown costs increased 10 basis points resulting from a reserve for a product recall and higher clearance markdowns on the Family Dollar segment, partially offset by lower seasonal markdowns on the Dollar Tree segment and $10.4 million of uninsured markdown costs for stores affected by civil unrest in 2020.

•Occupancy costs increased 5 basis points primarily due to the loss of leverage from the comparable store net sales decrease on the Family Dollar segment.

•Distribution costs decreased 5 basis points resulting from COVID-19-related expenses in 2020 of $36.3 million, including COVID-19 premium pay for all hourly associates for all hours worked from March 8, 2020 through January 2, 2021, partially offset by hourly wage increases at the distribution centers in 2021 and higher depreciation costs on the Dollar Tree segment resulting from the two new distribution centers. COVID-19-related expenses at the distribution centers in 2021 were $8.8 million.

•Shrink costs decreased 40 basis points resulting from favorable inventory results in relation to accruals and decreases in the accrual rates on both the Family Dollar and Dollar Tree segments in the current year.

31

Table of Contents

Selling, General and Administrative Expenses

The decrease in the selling, general and administrative expense rate from 2020 to 2021 was the result of the net of the following:

•Payroll expenses decreased 70 basis points primarily due to lower COVID-19-related store payroll costs and lower incentive and stock compensation expenses, partially offset by minimum wage increases in the current year and higher health care costs. Fiscal 2021 and 2020 included $17.6 million and $212.6 million, respectively of COVID-19-related payroll costs. The COVID-19 expenses in 2021 were primarily for quarantine and sick pay as well as the related payroll taxes. The prior year expenses were for store payroll costs for a wage premium paid to all store hourly associates for all hours worked from March 8, 2020 through September 26, 2020, bonuses for certain field management associates, guaranteed bonus payouts and Thank You bonuses for store managers, quarantine pay and sick pay as well as the related payroll taxes.

•Other selling, general and administrative expenses increased 10 basis points primarily due to higher debit and credit fees as a result of increased debit and credit card penetration and higher advertising costs.

We recorded a non-cash goodwill impairment charge of $313.0 million in fiscal 2019, as discussed further in Note 1 to our consolidated financial statements under the caption “Goodwill and Nonamortizing Intangible Assets.” Excluding the goodwill impairment charge in 2019, the selling, general and administrative expense rate was 23.2% in 2019.

Operating Income

Operating income margin decreased to 6.9% in fiscal 2021 compared to 7.4% in fiscal 2020. In the current year, the decrease in gross profit margin was partially offset by the decrease in the selling, general and administrative expense rate, as described above. Operating income in fiscal 2021 included $33.5 million of COVID-19-related expenses. Operating income in fiscal 2020 included $279.0 million of COVID-19-related expenses and $18.2 million of uninsured expenses related to civil unrest.

Excluding the non-cash goodwill impairment charge in 2019, operating income margin was 6.7% in 2019.

Interest Expense, Net

Interest expense, net increased $31.6 million in fiscal 2021 compared to the prior year, resulting from the refinancing of our debt in the fourth quarter of 2021, which resulted in prepayment penalties of $43.8 million and the acceleration of the expensing of $2.7 million of amortizable non-cash deferred financing costs. These increases were partially offset by lower average debt outstanding in the current year.

32

Table of Contents

Provision for Income taxes

The effective tax rate for 2021 was 18.6% compared to 22.9% for 2020. The 2021 effective rate decreased compared to the prior year rate primarily resulting from a deferred tax benefit related to state entity restructuring in the current year and additional tax deductions in the current year related to restricted stock vesting. In the prior year, the restricted stock vesting resulted in an increase in tax expense.

Segment Information

We operate a chain of more than 16,000 retail discount stores in 48 states and five Canadian provinces. Our operations are conducted in two reporting business segments: Dollar Tree and Family Dollar. We define our segments as those operations whose results our chief operating decision maker (“CODM”) regularly reviews to analyze performance and allocate resources.

We measure the results of our segments using, among other measures, each segment’s net sales, gross profit and operating income. 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. Corporate, support and Other consists primarily of store support center costs that are considered shared services and therefore these selling, general and administrative costs are excluded from our two reporting business segments. These costs include operating expenses for our store support center and the results of operations for our Summit Pointe property in Chesapeake, Virginia. The Family Dollar segment “Operating income” includes advertising revenue, which is a component of “Other revenue” in the accompanying consolidated income statements. Prior year amounts have been reclassified to conform to the current year presentation.

Dollar Tree

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

Net sales for the Dollar Tree segment increased 5.0%, or $657.1 million, in 2021 compared to 2020 due to sales from new stores of $446.2 million and a 2.1% increase in comparable store net sales. Average ticket increased 3.9% and customer traffic declined 1.8% in 2021.

Gross profit margin for the Dollar Tree segment decreased to 33.1% in 2021 from 34.3% in 2020. The decrease is due to the net of the following:

•Merchandise cost, including freight, increased 170 basis points due primarily to higher freight costs, partially offset by increased initial mark-on and higher sales of higher margin discretionary merchandise, including higher seasonal sell-through.

•Markdown costs decreased 5 basis points resulting from lower seasonal markdowns in the current year due to improved seasonal sell-through, partially offset by increased dated product markdowns.

•Distribution costs decreased 5 basis points resulting primarily from lower COVID-19-related expenses in the current year, partially offset by higher depreciation costs related to two new distribution centers and higher hourly wages in the current year. Total distribution center COVID-19-related expenses were approximately $5.9 million and $21.3 million for fiscal

33

Table of Contents

2021 and 2020, respectively. COVID-19-related expenses in 2020 included a wage premium paid to all distribution center hourly associates for all hours worked from March 8, 2020 through January 2, 2021.

•Occupancy costs decreased 5 basis points resulting from the leverage from the comparable store net sales increase in the current year.

•Shrink costs decreased 40 basis points resulting from favorable inventory results in relation to accruals in the current year and a decrease in the shrink accrual rate.

Operating income margin for the Dollar Tree segment decreased to 11.5% in 2021 compared to 12.0% in 2020. The decrease in operating income margin in 2021 was the result of lower gross profit margin as noted above, partially offset by a lower selling, general and administrative expense rate. The selling, general and administrative expense rate decreased to 21.5% in 2021 compared to 22.3% in 2020 primarily resulting from a decrease in payroll expenses of 65 basis points primarily due to lower COVID-19-related store payroll costs and lower incentive compensation expenses, partially offset by minimum wage increases and higher health insurance costs. Fiscal 2021 and fiscal 2020 included $9.5 million and $124.2 million, respectively, of COVID-19-related payroll expenses. COVID-19 expenses in the current year were primarily for quarantine and sick pay as well as the related payroll taxes. In the prior year, COVID-19-related payroll expenses included store payroll costs for a wage premium paid to all store hourly associates for all hours worked from March 8, 2020 to September 26, 2020, bonuses for certain field management associates, quarantine pay and sick pay as well as the related payroll taxes.

Operating income in fiscal 2021 included $19.2 million of COVID-19-related expenses. Operating income in fiscal 2020 included $161.1 million of COVID-19-related expenses and $5.4 million of uninsured costs related to civil unrest.

Family Dollar

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

Net sales for the Family Dollar segment increased $144.3 million, or 1.2%, in 2021 compared to 2020 due to $257.2 million of new store sales, partially offset by a comparable store net sales decrease of 0.1%. Average ticket increased 5.7% and customer traffic declined 5.6% in 2021.

Gross profit margin for the Family Dollar segment decreased to 25.2% in 2021 compared to 26.5% in 2020. The decrease is due to the net of the following:

•Merchandise cost, including freight, increased 130 basis points primarily due to higher freight costs, partially offset by higher initial mark-on.

•Markdown costs increased 20 basis points resulting from an increased reserve for a product recall and higher clearance markdowns, partially offset by $7.5 million of uninsured markdowns for stores affected by civil unrest in the prior year.

•Occupancy costs increased 15 basis points as a result of the loss of leverage from the comparable store net sales decrease and higher real estate tax expenses.

•Shrink expense decreased 35 basis points resulting from favorable physical inventory results in relation to accruals and a decrease in the shrink accrual rate.

•Distribution costs decreased 5 basis points primarily due to lower COVID-19-related costs, partially offset by higher hourly wages. Total distribution center COVID-19-related expenses were $2.9 million and $15.0 million for 2021 and 2020, respectively. COVID-19-related expenses in the prior year included a wage premium for all distribution center hourly associates for all hours worked beginning March 8, 2020 through January 2, 2021.

34

Table of Contents

Operating income margin decreased to 4.4% in 2021 compared to 5.4% in 2020, resulting from the gross margin decrease noted above, partially offset by a decrease in the selling, general and administrative expense rate. The selling, general and administrative expense rate was 20.9% in 2021 compared to 21.1% in 2020. The decrease was due to the net of the following:

•Payroll expenses decreased 50 basis points primarily due to lower COVID-19-related store payroll costs and lower incentive compensation expenses, partially offset by minimum wage increases and the loss of leverage from the comparable store net sales decrease. COVID-19-related payroll expenses for 2021 and 2020 were $8.1 million and $88.4 million, respectively. COVID-19 expenses in the current year were primarily for quarantine and sick pay as well as the related payroll taxes. The prior year included a wage premium paid to all store hourly associates for all hours worked from March 8, 2020 to September 26, 2020, bonuses for certain field management associates, guaranteed bonus payouts and Thank You bonuses for store managers, quarantine pay and sick pay as well as the related payroll taxes.

•Store facility costs decreased 5 basis points primarily due to lower telecommunication expenses and lower repairs and maintenance expenses. Fiscal 2020 included $2.8 million of incremental repairs and maintenance expenses for stores damaged by civil unrest.

•Other selling, general and administrative expenses increased 25 basis points primarily due to an increase in advertising expenses, increases in tax reserves and the loss of leverage from the comparable store net sales decrease. Promotional advertising was lower in the prior year due to the COVID-19 pandemic.

•Depreciation and amortization expense increased 10 basis points primarily due to the loss of leverage from the comparable store net sales decrease and expenditures associated with the store renovation program.

Operating income in fiscal 2021 included $13.9 million of COVID-19-related expenses. Fiscal 2020 included $115.5 million for COVID-19-related expenses and $12.8 million of uninsured costs related to civil unrest. Excluding the $313.0 million non-cash goodwill impairment charge in 2019, operating income margin for the Family Dollar segment was 2.1% in 2019.

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 years ended January 29, 2022, January 30, 2021 and February 1, 2020:

Operating Activities

Net cash provided by operating activities decreased $1,284.8 million in 2021 compared to 2020 primarily as a result of higher inventory levels and lower current liabilities, partially offset by higher accounts payable.

Investing Activities

Net cash used in investing activities increased $130.2 million in 2021 compared with 2020 primarily due to higher capital expenditures in the current year.

Financing Activities

Net cash used in financing activities decreased $113.4 million in 2021 compared to 2020 primarily due to the following:

•On December 1, 2021, we completed the registered offering of $800.0 million aggregate principal amount of Senior Notes due 2031 and $400.0 million aggregate principal amount of Senior Notes due 2051 and used the proceeds of the offering to

35

Table of Contents

redeem the $1.0 billion 2023 Notes, which resulted in our incurring a $43.8 million prepayment penalty. In addition, in connection with the registering of these senior notes and the refinancing of our revolving line of credit, we paid $15.5 million in deferred financing costs.

•In 2021, we paid $950.0 million in cash for stock repurchases compared to $400.0 million in the prior year.

•In 2020, we also repaid the remaining $250.0 million of our $750.0 million Floating Rate Notes and the $300.0 million 5% Senior Notes.

At January 29, 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 $46.0 million. For additional detail on our long-term borrowings and other commitments, refer to the discussion of Funding Requirements below, as well as Note 4 and Note 5 to our consolidated financial statements.

Share Repurchases

We repurchased 9,156,898, 3,982,478 and 1,967,355 shares of common stock on the open market in fiscal 2021, fiscal 2020 and fiscal 2019, respectively, for $950.0 million, $400.0 million and $200.0 million, respectively. At January 29, 2022, we had $2.5 billion remaining under Board repurchase authorization.

Funding Requirements

Overview

We expect our cash needs for opening new stores and expanding and renovating existing stores in fiscal 2022 to total approximately $748.0 million, which includes capital expenditures, initial inventory and pre-opening costs.

Our estimated capital expenditures for fiscal 2022 are approximately $1.3 billion, including planned expenditures for our new and expanded stores, store renovations, distribution center expansions and the development of additional parcels on our Summit Pointe property, located in Chesapeake, Virginia, for mixed-use purposes. We believe that we can adequately fund our working capital requirements and planned capital expenditures for the foreseeable future from net cash provided by operations and potential borrowings under our revolving credit facility.

Our material contractual obligations consist of long-term debt and related interest payments and operating lease obligations. Additionally, we have commitments related to ocean shipping contracts, software license and support agreements, telecommunication services and store technology assets and maintenance for our stores. Other commitments include letters of credit for imported merchandise, standby letters of credit that serve as collateral for our large-deductible insurance programs and surety bonds that serve as collateral for utility payments at our stores and self-insured insurance programs. For additional information regarding these obligations, including amounts outstanding at January 29, 2022, refer to Note 4, Note 5 and Note 6 to our consolidated financial statements.

Critical Accounting Estimates

The preparation of financial statements requires the use of estimates. Certain of our estimates require a high level of judgment and have the potential to have a material effect on the financial statements if actual results vary significantly from those estimates. Following is a discussion of the estimates that we consider critical.

Inventory Valuation

As discussed in Note 1 to our consolidated financial statements under the caption “Merchandise Inventories,” inventories at the distribution centers are stated at the lower of cost or net realizable value with cost determined on a weighted-average basis. Cost is assigned to store inventories using the retail inventory method on a weighted-average basis. Under the retail inventory method, the valuation of inventories at cost and the resulting gross margins are computed by applying a calculated cost-to-retail ratio to the retail value of inventories. The retail inventory method is an averaging method that is widely used in the retail industry and results in valuing inventories at lower of cost or market when markdowns are taken as a reduction of the retail value of inventories on a timely basis.

Inventory valuation methods require certain management estimates and judgments, including estimates of future merchandise markdowns and shrink, which significantly affect the ending inventory valuation at cost as well as the resulting gross margins. The averaging required in applying the retail inventory method and the estimates of shrink and markdowns could, under certain circumstances, result in costs not being recorded in the proper period.

We estimate our markdown reserve based on the consideration of a variety of factors, including, but not limited to, quantities of slow moving or seasonal carryover merchandise on hand, historical markdown statistics and future merchandising plans. The accuracy

36

Table of Contents

of our estimates can be affected by many factors, some of which are outside of our control, including changes in economic conditions and consumer buying trends. Historically, we have not experienced significant differences in our estimated reserve for markdowns compared with actual results.

Our accrual for shrink is based on the actual, historical shrink results of our most recent physical inventories adjusted, if necessary, for current economic conditions and business trends. These estimates are compared to actual results as physical inventory counts are taken and reconciled to the general ledger. Our physical inventory counts are generally taken between January and October of each year; therefore, the shrink accrual recorded at January 29, 2022 is based on estimated shrink for most of 2021, including the fourth quarter. The amounts recorded in the current year reflect the Dollar Tree and Family Dollar segments’ historical results. We periodically adjust our shrink estimates to reflect our best estimates based on the factors described and, historically, these adjustments have not been material.

Our management believes that our application of the retail inventory method results in an inventory valuation that reasonably approximates cost and results in carrying inventory at the lower of cost or market each year on a consistent basis.

Self-Insurance Liabilities

The liabilities related to our self-insurance programs for workers’ compensation and general liability are estimates that require judgment and the use of assumptions. Semiannually, we obtain third-party actuarial valuations to aid in valuing the liabilities and in determining the amount to accrue during the year. These actuarial valuations are estimates based on our historical loss development factors and the related accruals are adjusted as management’s estimates change.

Management’s estimate for self-insurance liabilities could vary from the ultimate loss sustained given the difficulty in predicting future events; however, historically, the net total of these differences has not had a material effect on our financial condition or results of operations.

Goodwill and Indefinite-Lived Intangible Assets

Goodwill and indefinite-lived intangible assets are initially recorded at their fair values. These assets are not amortized but are evaluated annually for impairment. A more frequent evaluation is performed if events or circumstances indicate that impairment could have occurred. Such events or circumstances could include, but are not limited to, significant negative industry or economic trends, unanticipated changes in the competitive environment and a significant sustained decline in the market price of our stock.

For purposes of our goodwill impairment evaluation, the reporting units are Family Dollar, Dollar Tree and Dollar Tree Canada. Goodwill has been assigned to the reporting units based on prior business combinations related to the brands. In the event a qualitative assessment of the fair value of a reporting unit indicates it is more likely than not that the fair value is less than the carrying amount, we then estimate the fair value using a combination of a market multiple method and a discounted cash flow method. Under the market multiple approach, we estimate a fair value based on comparable companies’ market multiples of revenues and earnings before interest, taxes, depreciation and amortization (“EBITDA”) and adjusted for a control premium. Under the discounted cash flow approach, we project future cash flows which are discounted using a weighted-average cost of capital analysis that reflects current market conditions, adjusted for specific reporting unit risks (primarily the uncertainty of achieving projected operating cash flows). If the carrying amount of a reporting unit exceeds its estimated fair value, an impairment loss is recognized in an amount equal to that excess.

The Family Dollar goodwill and trade name comprise a substantial portion of our goodwill and indefinite-lived intangible assets and management’s judgment utilized in the Family Dollar goodwill and trade name impairment evaluations is critical. The computations require management to make estimates and assumptions and actual results may differ significantly, particularly if there are significant adverse changes in the operating environment. Critical assumptions that are used as part of a quantitative Family Dollar goodwill evaluation include:

•The potential future revenue, EBITDA and cash flows of the reporting unit. The projections use management’s assumptions about economic and market conditions over the projected period as well as our estimates of future performance and reporting unit revenue, gross margin, expenses and other factors. The resulting revenue, EBITDA and cash flow estimates are based on our most recent business operating plans, and various growth rates are assumed for years beyond the current business plan period. We did not perform a quantitative evaluation in fiscal 2021; however, we believe that the assumptions, estimates and rates used in our fiscal 2020 impairment evaluations are reasonable. Variations in the assumptions, estimates and rates could result in significantly different estimates of fair value.

•Selection of an appropriate discount rate. Calculating the present value of future cash flows requires the selection of an appropriate discount rate, which is based on a weighted-average cost of capital analysis. The discount rate is affected by changes in short-term interest rates and long-term yield as well as variances in the typical capital structure of marketplace participants. Given current economic conditions, it is possible that the discount rate will fluctuate in the near term. During

37

Table of Contents

fiscal 2020, we engaged third party experts to assist in the determination of the weighted-average cost of capital used to discount the cash flows for our Family Dollar reporting unit. We did not perform a quantitative analysis in fiscal 2021; however, the weighted-average cost of capital used to discount the cash flows for our evaluation was 8.25% for our fiscal 2020 analysis.

Indefinite-lived intangible assets, such as the Family Dollar trade name, are not subject to amortization but are reviewed at least annually for impairment. The indefinite-lived intangible asset impairment evaluations are performed by comparing the fair value of the indefinite-lived intangible assets to their carrying values. We estimate the fair value of our trade name intangible asset based on an income approach using the relief-from-royalty method. This approach is dependent upon a number of factors, including estimates of future growth and trends, royalty rates, discount rates and other variables. We base our fair value estimates on assumptions we believe to be reasonable, but which are inherently uncertain. The discount rate includes a premium compared to the discount used for the Family Dollar goodwill impairment evaluation due to the inherently higher risk profile of intangible assets compared to the overall reporting unit.

Our evaluation of goodwill did not result in impairment charges being recorded in fiscal 2021 or 2020. A non-cash impairment charge of $313.0 million was recorded in fiscal 2019 related to the Family Dollar reporting unit. Our evaluation of the Family Dollar trade name did not result in impairment charges during fiscal 2021, 2020 or 2019. Based on the results of the 2020 quantitative evaluation, the fair value of the Family Dollar reporting unit exceeded its carrying value by a significant margin and the fair value of the Family Dollar trade name exceeded its carrying value by approximately 7.5%.

For additional information related to goodwill and indefinite-lived intangible assets, including the related impairment evaluations, refer to Note 1 to our consolidated financial statements under the caption “Goodwill and Nonamortizing Intangible Assets.” For additional information related to uncertainties associated with the key assumptions and any potential events and/or circumstances that could have a negative effect on the key assumptions, please refer to “Item 1A. Risk Factors” and elsewhere within this “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” If our assumptions and related estimates change in the future, we may be required to record impairment charges against earnings in future periods. Any impairment charges that we may take in the future could be material to our results of operations and financial condition.