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.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended August 4, 2023

or

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ________ to ________

Commission File Number: 001-11421

DOLLAR GENERAL CORPORATION

(Exact name of Registrant as specified in its charter)

TENNESSEE

    

61-0502302

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

100 MISSION RIDGE

GOODLETTSVILLE, TN 37072

(Address of principal executive offices, zip code)

Registrant’s telephone number, including area code: (615) 855-4000

Former name, former address and former fiscal year, if changed since last report: Not Applicable

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

    

Name of each exchange on which registered

Common Stock, par value $0.875 per share

DG

New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes  No 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

    

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

The Registrant had 219,476,497 shares of common stock outstanding on August 24, 2023.

TABLE OF CONTENTS

Part I

Financial Information

Item 1. Financial Statements

2

Condensed Consolidated Balance Sheets

2

Condensed Consolidated Statements of Income

3

Condensed Consolidated Statements of Comprehensive Income

4

Condensed Consolidated Statements of Shareholders’ Equity

5

Condensed Consolidated Statement of Cash Flows

6

Notes to Condensed Consolidated Financial Statements

7

Report of Independent Registered Public Accounting Firm

13

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

14

Item 3. Quantitative and Qualitative Disclosures About Market Risk

24

Item 4. Controls and Procedures

24

Part II

Other Information

Item 1. Legal Proceedings

25

Item 1A. Risk Factors

25

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

25

Item 5. Other Information

25

Item 6. Exhibits

25

Cautionary Disclosure Regarding Forward-Looking Statements

26

Exhibit Index

29

Signature

30

1

PART I—FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS.

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

    

August 4,

    

February 3,

 

2023

2023

 

ASSETS

Current assets:

Cash and cash equivalents

$

353,018

$

381,576

Merchandise inventories

 

7,531,459

 

6,760,733

Income taxes receivable

151,730

135,775

Prepaid expenses and other current assets

 

377,772

 

302,925

Total current assets

 

8,413,979

 

7,581,009

Net property and equipment

 

5,624,129

 

5,236,309

Operating lease assets

10,755,172

10,670,014

Goodwill

 

4,338,589

 

4,338,589

Other intangible assets, net

 

1,199,700

 

1,199,700

Other assets, net

 

63,988

 

57,746

Total assets

$

30,395,557

$

29,083,367

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Current portion of operating lease liabilities

$

1,331,433

$

1,288,939

Accounts payable

 

3,681,634

3,552,991

Accrued expenses and other

 

1,013,594

1,036,919

Income taxes payable

 

7,261

8,919

Total current liabilities

 

6,033,922

 

5,887,768

Long-term obligations

 

7,295,215

 

7,009,399

Long-term operating lease liabilities

9,409,193

9,362,761

Deferred income taxes

 

1,119,114

 

1,060,906

Other liabilities

 

240,408

 

220,761

Commitments and contingencies

Shareholders’ equity:

Preferred stock

 

Common stock

 

192,039

 

191,718

Additional paid-in capital

 

3,724,200

 

3,693,871

Retained earnings

 

2,380,451

 

1,656,140

Accumulated other comprehensive loss

 

1,015

 

43

Total shareholders’ equity

 

6,297,705

 

5,541,772

Total liabilities and shareholders' equity

$

30,395,557

$

29,083,367

See notes to condensed consolidated financial statements.

2

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share amounts)

For the 13 weeks ended

For the 26 weeks ended

    

August 4,

    

July 29,

    

August 4,

    

July 29,

 

2023

2022

2023

2022

Net sales

$

9,796,181

$

9,425,713

$

19,139,013

$

18,177,065

Cost of goods sold

 

6,751,495

 

6,377,490

 

13,138,853

 

12,390,479

Gross profit

 

3,044,686

 

3,048,223

 

6,000,160

 

5,786,586

Selling, general and administrative expenses

 

2,352,372

 

2,134,797

 

4,566,988

 

4,127,003

Operating profit

 

692,314

 

913,426

 

1,433,172

 

1,659,583

Interest expense

 

84,337

 

43,098

 

167,375

 

82,774

Income before income taxes

 

607,977

 

870,328

 

1,265,797

 

1,576,809

Income tax expense

 

139,142

 

192,298

 

282,582

 

346,122

Net income

$

468,835

$

678,030

$

983,215

$

1,230,687

Earnings per share:

Basic

$

2.14

$

3.00

$

4.48

$

5.41

Diluted

$

2.13

$

2.98

$

4.47

$

5.39

Weighted average shares outstanding:

Basic

 

219,403

 

226,299

 

219,298

 

227,388

Diluted

219,952

227,456

220,029

228,533

Dividends per share

$

0.59

$

0.55

$

1.18

$

1.10

See notes to condensed consolidated financial statements.

3

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

For the 13 weeks ended

For the 26 weeks ended

August 4,

July 29,

August 4,

July 29,

2023

    

2022

    

2023

    

2022

Net income

$

468,835

$

678,030

    

$

983,215

$

1,230,687

Unrealized net gain (loss) on hedged transactions and currency translation, net of related income tax expense (benefit) of ($26), $86, $61, and $173, respectively

 

367

 

36

    

 

972

 

226

Comprehensive income

$

469,202

$

678,066

    

$

984,187

$

1,230,913

See notes to condensed consolidated financial statements.

4

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

(In thousands, except per share amounts)

    

    

    

    

    

Accumulated

    

Common

Additional

Other

Stock

Common

Paid-in

Retained

Comprehensive

Shares

Stock

Capital

Earnings

Income (Loss)

Total

Balances, May 5, 2023

 

219,336

$

191,921

$

3,701,564

$

2,041,118

$

648

$

5,935,251

Net income

 

 

 

 

468,835

 

 

468,835

Dividends paid, $0.59 per common share

(129,502)

(129,502)

Unrealized net gain (loss) on hedged transactions and currency translation

 

 

 

 

 

367

 

367

Share-based compensation expense

 

 

 

8,810

 

 

 

8,810

Other equity and related transactions

 

134

 

118

 

13,826

 

 

 

13,944

Balances, August 4, 2023

 

219,470

$

192,039

$

3,724,200

$

2,380,451

$

1,015

$

6,297,705

Balances, April 29, 2022

 

226,997

$

198,623

$

3,606,414

$

2,157,589

$

(1,002)

$

5,961,624

Net income

 

 

 

 

678,030

 

 

678,030

Dividends paid, $0.55 per common share

(124,206)

(124,206)

Unrealized net gain (loss) on hedged transactions and currency translation

 

 

 

 

 

36

 

36

Share-based compensation expense

 

 

 

15,148

 

 

 

15,148

Repurchases of common stock

 

(1,494)

 

(1,308)

 

 

(347,315)

 

 

(348,623)

Other equity and related transactions

 

64

 

57

 

6,425

 

 

 

6,482

Balances, July 29, 2022

 

225,567

$

197,372

$

3,627,987

$

2,364,098

$

(966)

$

6,188,491

Balances, February 3, 2023

 

219,105

$

191,718

$

3,693,871

$

1,656,140

$

43

$

5,541,772

Net income

 

983,215

 

983,215

Dividends paid, $1.18 per common share

(258,904)

(258,904)

Unrealized net gain (loss) on hedged transactions and currency translation

 

972

 

972

Share-based compensation expense

 

33,893

 

33,893

Other equity and related transactions

 

365

321

(3,564)

 

(3,243)

Balances, August 4, 2023

 

219,470

$

192,039

$

3,724,200

$

2,380,451

$

1,015

$

6,297,705

Balances, January 28, 2022

 

230,016

$

201,265

$

3,587,914

$

2,473,999

$

(1,192)

$

6,261,986

Net income

 

 

 

 

1,230,687

 

 

1,230,687

Dividends paid, $1.10 per common share

(249,468)

(249,468)

Unrealized net gain (loss) on hedged transactions and currency translation

 

 

 

 

 

226

 

226

Share-based compensation expense

 

 

 

42,093

 

 

 

42,093

Repurchases of common stock

 

(4,886)

 

(4,276)

 

 

(1,091,120)

 

 

(1,095,396)

Other equity and related transactions

 

437

 

383

 

(2,020)

 

 

 

(1,637)

Balances, July 29, 2022

 

225,567

$

197,372

$

3,627,987

$

2,364,098

$

(966)

$

6,188,491

See notes to condensed consolidated financial statements.

5

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

For the 26 weeks ended

 

    

August 4,

    

July 29,

 

2023

2022

 

Cash flows from operating activities:

Net income

$

983,215

$

1,230,687

Adjustments to reconcile net income to net cash from operating activities:

Depreciation and amortization

 

410,287

 

349,722

Deferred income taxes

 

58,147

 

81,419

Noncash share-based compensation

 

33,893

 

42,093

Other noncash (gains) and losses

 

57,367

 

214,128

Change in operating assets and liabilities:

Merchandise inventories

 

(817,001)

 

(1,528,744)

Prepaid expenses and other current assets

 

(78,358)

 

(87,244)

Accounts payable

 

107,810

 

622,346

Accrued expenses and other liabilities

 

(12,438)

 

22,389

Income taxes

 

(17,613)

 

2,829

Other

 

1,412

 

(1,609)

Net cash provided by (used in) operating activities

 

726,721

 

948,016

Cash flows from investing activities:

Purchases of property and equipment

 

(767,935)

 

(658,784)

Proceeds from sales of property and equipment

 

3,234

 

2,166

Net cash provided by (used in) investing activities

 

(764,701)

 

(656,618)

Cash flows from financing activities:

Issuance of long-term obligations

 

1,498,260

 

Repayments of long-term obligations

 

(8,843)

 

(4,696)

Net increase (decrease) in commercial paper outstanding

(1,205,400)

1,041,233

Borrowings under revolving credit facilities

 

500,000

 

Repayments of borrowings under revolving credit facilities

 

(500,000)

 

Costs associated with issuance of debt

 

(12,448)

 

Repurchases of common stock

 

 

(1,095,396)

Payments of cash dividends

(258,885)

(249,462)

Other equity and related transactions

 

(3,262)

 

(1,643)

Net cash provided by (used in) financing activities

 

9,422

 

(309,964)

Net increase (decrease) in cash and cash equivalents

 

(28,558)

 

(18,566)

Cash and cash equivalents, beginning of period

 

381,576

 

344,829

Cash and cash equivalents, end of period

$

353,018

$

326,263

Supplemental noncash investing and financing activities:

Right of use assets obtained in exchange for new operating lease liabilities

$

745,786

$

843,900

Purchases of property and equipment awaiting processing for payment, included in Accounts payable

$

171,527

$

139,023

See notes to condensed consolidated financial statements.

6

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.

Basis of presentation

The accompanying unaudited condensed consolidated financial statements of Dollar General Corporation (which individually or together with its subsidiaries, as the context requires, is referred to as the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and are presented in accordance with the requirements of Form 10-Q and Rule 10-01 of Regulation S-X. Such financial statements consequently do not include all of the disclosures normally required by U.S. GAAP for annual financial statements or those normally made in the Company’s Annual Report on Form 10-K, including the condensed consolidated balance sheet as of February 3, 2023 which was derived from the audited consolidated financial statements at that date. Accordingly, readers of this Quarterly Report on Form 10-Q should refer to the Company’s Annual Report on Form 10-K for the fiscal year ended February 3, 2023 for additional information.

The Company’s fiscal year ends on the Friday closest to January 31. Unless the context requires otherwise, references to years contained herein pertain to the Company’s fiscal year. The Company’s 2023 fiscal year is a 52-week accounting period ending on February 2, 2024, and the 2022 fiscal year was a 53-week accounting period that ended on February 3, 2023.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the Company’s customary accounting practices. In management’s opinion, all adjustments (which are of a normal recurring nature) necessary for a fair presentation of the consolidated financial position as of August 4, 2023 and results of operations for the 13-week and 26-week accounting periods ended August 4, 2023 and July 29, 2022 have been made.

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Because the Company’s business is moderately seasonal, the results for interim periods are not necessarily indicative of the results to be expected for the entire year.

The Company uses the last-in, first-out (“LIFO”) method of valuing inventory. An actual valuation of inventory under the LIFO method is made at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels, sales for the year and the expected rate of inflation or deflation for the year. The interim LIFO calculations are subject to adjustment in the final year-end LIFO inventory valuation. The Company recorded a LIFO provision of $20.2 million and $144.4 million in the respective 13-week periods, and $48.4 million and $205.8 million in the respective 26-week periods, ended August 4, 2023 and July 29, 2022. In addition, ongoing estimates of inventory shrinkage and initial markups and markdowns are included in the interim cost of goods sold calculation.

We utilize supply chain finance programs whereby qualifying suppliers may elect at their sole discretion to sell our payment obligations to designated third party financial institutions. While the terms of these agreements are between the supplier and the financial institution, the supply chain finance financial institutions allow the participating suppliers to utilize our creditworthiness in establishing credit spreads and associated costs. The Company’s obligations to its suppliers in accounts payable, including amounts due and scheduled payment dates, are not impacted by suppliers’ decisions to finance amounts under these arrangements. As of August 4, 2023 and February 3, 2023, the obligations outstanding at the end of the reporting period were $270.7 million and $343.6 million, respectively.

In September 2022, the FASB issued new required disclosures for supplier finance programs. This is intended to enhance the transparency about the use of supplier finance programs for investors. The amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with the exception of the disclosure of rollforward information, which is effective for fiscal years beginning after December 15, 2023. The Company adopted the required disclosures for this accounting standard update in fiscal 2023, except for the disclosure of rollforward activity, which will be adopted for fiscal year 2024.

7

In March 2020 and January 2021, the Financial Accounting Standards Board (“FASB”) issued accounting standards updates pertaining to reference rate reform. This collective guidance is in response to accounting concerns regarding contract modifications and hedge accounting because of impending rate reform associated with structural risks of interbank offered rates (IBORs), and, particularly, the risk of cessation of LIBOR, related to regulators in several jurisdictions around the world having undertaken reference rate reform initiatives to identify alternative reference rates. The guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The adoption of this guidance is effective for all entities as of March 12, 2020 through December 31, 2024. The Company completed its transition from LIBOR to Term SOFR in its credit agreements governing the Facilities in fiscal year 2022 with no material impact to the financial statements.

2.

Earnings per share

Earnings per share is computed as follows (in thousands, except per share data):

13 Weeks Ended August 4, 2023

13 Weeks Ended July 29, 2022

   

    

Weighted

   

  

  

   

Weighted

   

 

Net

Average

Per Share

Net

Average

Per Share

Income

Shares

Amount

Income

Shares

Amount

Basic earnings per share

$

468,835

 

219,403

$

2.14

$

678,030

 

226,299

$

3.00

Effect of dilutive share-based awards

 

549

 

1,157

Diluted earnings per share

$

468,835

 

219,952

$

2.13

$

678,030

 

227,456

$

2.98

26 Weeks Ended August 4, 2023

26 Weeks Ended July 29, 2022

    

Weighted

   

  

  

   

Weighted

   

Net

Average

Per Share

Net

Average

Per Share

Income

Shares

Amount

Income

Shares

Amount

Basic earnings per share

$

983,215

 

219,298

$

4.48

$

1,230,687

 

227,388

$

5.41

Effect of dilutive share-based awards

 

731

 

1,145

Diluted earnings per share

$

983,215

 

220,029

$

4.47

$

1,230,687

 

228,533

$

5.39

Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is determined based on the dilutive effect of share-based awards using the treasury stock method.

Share-based awards that were outstanding at the end of the respective periods but were not included in the computation of diluted earnings per share because the effect of exercising such awards would be antidilutive, were approximately 0.1 million in each of the respective 13-week periods and 26-week periods, ended August 4, 2023 and July 29, 2022.

3.

Income taxes

Under the accounting standards for income taxes, the asset and liability method is used for computing the future income tax consequences of events that have been recognized in the Company’s consolidated financial statements or income tax returns.

Income tax reserves are determined using the methodology established by accounting standards for income taxes which require companies to assess each income tax position taken using the following two-step approach. A determination is first made as to whether it is more likely than not that the position will be sustained, based upon the technical merits, upon examination by the taxing authorities. If the tax position is expected to meet the more likely than not criteria, the benefit recorded for the tax position equals the largest amount that is greater than 50% likely to be realized upon ultimate settlement of the respective tax position.

The Company’s 2018 and earlier tax years are not open for further examination by the Internal Revenue Service (“IRS”). The IRS, at its discretion, may choose to examine the Company’s 2019 through 2021 fiscal year income tax

8

filings. The Company has various state income tax examinations that are currently in progress. Generally, with few exceptions, the Company’s 2019 and later tax years remain open for examination by the various state taxing authorities.

As of August 4, 2023, the total reserves for uncertain tax benefits, interest expense related to income taxes and potential income tax penalties were $11.7 million, $0.8 million and $0.0 million, respectively, for a total of $12.5 million. The uncertain tax liability is reflected in noncurrent other liabilities in the condensed consolidated balance sheet.

The Company’s reserve for uncertain tax positions is expected to be reduced by $3.1 million in the coming twelve months as a result of expiring statutes of limitations or settlements. As of August 4, 2023, approximately $9.6 million of the reserve for uncertain tax positions would impact the Company’s effective income tax rate if the Company were to recognize the tax benefit for these positions.

The effective income tax rates for the 13-week and 26-week periods ended August 4, 2023 were 22.9% and 22.3% respectively, compared to a rates of 22.1% and 22.0% for the 13-week and 26-week periods ended July 29, 2022. The effective income tax rate was higher for the 13-week period in 2023 than the comparable 13-week period in 2022 primarily due to a higher state effective tax rate and an increase in the valuation allowance against foreign net operating losses while the higher rate for the 26-week period in 2023 was primarily due to less benefit from stock-based compensation than the comparable 26-week period in 2022.

4.Leases

As of August 4, 2023, the Company’s primary leasing activities were real estate leases for most of its retail store locations and certain of its distribution facilities. Substantially all of the Company’s leases are classified as operating leases and the associated assets and liabilities are presented as separate captions in the condensed consolidated balance sheets. Finance lease assets are included in net property and equipment, and finance lease liabilities are included in long-term obligations, in the condensed consolidated balance sheets. At August 4, 2023, the weighted-average remaining lease term for the Company’s operating leases was 9.5 years, and the weighted average discount rate for such leases was 4.0%. Operating lease costs are reflected as selling, general and administrative costs in the condensed consolidated statements of income. For the 26-week periods ended August 4, 2023 and July 29, 2022, such costs were $855.3 million and $787.0 million, respectively. Cash paid for amounts included in the measurement of operating lease liabilities of $861.5 million and $794.7 million, respectively, were reflected in cash flows from operating activities in the condensed consolidated statements of cash flows for the 26-week periods ended August 4, 2023 and July 29, 2022.

5.

Current and long-term obligations

Current and long-term obligations consist of the following:

    

August 4,

    

February 3,

 

(In thousands)

2023

2023

 

Revolving Facility

$

$

364-Day Revolving Facility

4.250% Senior Notes due September 20, 2024 (net of discount of $399 and $563)

749,601

749,437

4.150% Senior Notes due November 1, 2025 (net of discount of $206 and $249)

499,794

499,751

3.875% Senior Notes due April 15, 2027 (net of discount of $184 and $207)

599,816

599,793

4.625% Senior Notes due November 1, 2027 (net of discount of $448 and $495)

549,552

549,505

4.125% Senior Notes due May 1, 2028 (net of discount of $262 and $287)

499,738

499,713

5.200% Senior Notes due July 5, 2028 (net of discount of $136 and $0)

499,864

3.500% Senior Notes due April 3, 2030 (net of discount of $473 and $504)

945,619

952,440

5.000% Senior Notes due November 1, 2032 (net of discount of $2,252 and $2,346)

697,748

697,654

5.450% Senior Notes due July 5, 2033 (net of discount of $1,580 and $0)

998,420

4.125% Senior Notes due April 3, 2050 (net of discount of $4,718 and $4,766)

495,282

495,234

5.500% Senior Notes due November 1, 2052 (net of discount of $290 and $292)

299,710

299,708

Unsecured commercial paper notes

296,500

1,501,900

Other

209,055

200,695

Debt issuance costs, net

 

(45,484)

 

(36,431)

Long-term obligations

$

7,295,215

$

7,009,399

9

The Company has a $2.0 billion senior unsecured revolving credit facility (the “Revolving Facility”) of which up to $100.0 million is available for letters of credit and is scheduled to mature on December 2, 2026.

Borrowings under the Revolving Facility bear interest at a rate equal to an applicable interest rate margin plus, at the Company’s option, either (a) Adjusted Term SOFR (which is Term SOFR, as published by CME Group Benchmark Administration Limited, plus a credit spread adjustment of 0.10%) or (b) a base rate (which is usually equal to the prime rate). The applicable interest rate margin for borrowings as of August 4, 2023 was 1.015% for Adjusted Term SOFR borrowings and 0.015% for base-rate borrowings. The Company is also required to pay a facility fee, payable on any used and unused commitment amounts of the Revolving Facility, and customary fees on letters of credit issued under the Revolving Facility. As of August 4, 2023, the facility fee rate was 0.11%. The applicable interest rate margins for borrowings, the facility fees and the letter of credit fees under the Revolving Facility are subject to adjustment from time to time based on the Company’s long-term senior unsecured debt ratings.

The Company has a 364-day $750 million unsecured revolving credit facility (the “364-Day Revolving Facility”) which will expire on January 30, 2024.

Borrowings under the 364-Day Revolving Facility bear interest at a rate equal to an applicable interest rate margin plus, at the Company’s option, either (a) Adjusted Term SOFR (which is Term SOFR, as published by CME Group Benchmark Administration Limited, plus a credit spread adjustment of 0.10%) or (b) a base rate (which is usually equal to the prime rate). The Company is also required to pay a facility fee to the lenders under the 364-Day Revolving Facility for any used and unused commitments. As of August 4, 2023, the applicable interest rate margin for Adjusted Term SOFR loans was 1.035% and the facility fee rate was 0.09%. The applicable interest rate margins for borrowings and the facility fees under the 364-Day Revolving Facility are subject to adjustment from time to time based on the Company’s long-term senior unsecured debt ratings.

The credit agreements governing the Revolving Facility and the 364-Day Revolving Facility (together, the “Facilities”) contain a number of customary affirmative and negative covenants that, among other things, restrict, subject to certain exceptions, the Company’s ability to: incur additional liens; sell all or substantially all of the Company’s assets; consummate certain fundamental changes or change in the Company’s lines of business; and incur additional subsidiary indebtedness. The credit agreements governing the Facilities also contain financial covenants which require the maintenance of a minimum fixed charge coverage ratio and a maximum leverage ratio. As of August 4, 2023, the Company was in compliance with all such covenants. The credit agreements governing each of the Facilities also contain customary events of default.

As of August 4, 2023, the Company had no outstanding borrowings, no outstanding letters of credit, and approximately $2.0 billion of borrowing availability under the Revolving Facility that, due to the Company’s intention to maintain borrowing availability related to the commercial paper program described below, could contribute incremental liquidity of $1.5 billion. As of August 4, 2023, under the 364-Day Revolving Facility, the Company had no outstanding borrowings and borrowing availability of $750.0 million. As of August 4, 2023, the Company had combined availability under the Facilities of $2.3 billion. In addition, as of August 4, 2023, the Company had outstanding letters of credit of $43.2 million which were issued pursuant to separate agreements.

As of August 4, 2023, the Company had a commercial paper program under which the Company may issue unsecured commercial paper notes (the “CP Notes”) from time to time in an aggregate amount not to exceed $2.0 billion outstanding at any time. The CP Notes may have maturities of up to 364 days from the date of issue and rank equal in right of payment with all of the Company’s other unsecured and unsubordinated indebtedness. The Company intends to maintain available commitments under the Revolving Facility in an amount at least equal to the amount of CP Notes outstanding at any time. As of August 4, 2023, the Company’s condensed consolidated balance sheet reflected outstanding unsecured CP Notes of $0.3 billion, which had a weighted average borrowing rate of 5.4%. CP Notes totaling $201.5 million and $230.8 million at August 4, 2023 and February 3, 2023, respectively, were held by a wholly-owned subsidiary of the Company and are therefore not reflected in the condensed consolidated balance sheets.

On June 7, 2023, the Company issued $500.0 million aggregate principal amount of 5.20% senior notes due 2028 (the “July 2028 Senior Notes”), net of discount of $0.1 million and $1.0 billion aggregate principal amount of 5.45% senior notes due 2033 (the “2033 Senior Notes”), net of discount of $1.6 million. The July 2028 Senior Notes are scheduled to mature on July 5, 2028 and the 2033 Senior Notes are scheduled to mature on July 5, 2033. Interest on the July 2028 Senior Notes and 2033 Senior Notes is payable in cash on January 5 and July 5 of each year, commencing

10

on January 5, 2024. The Company incurred $12.4 million of debt issuance costs associated with the issuance of the July 2028 Senior Notes and 2033 Senior Notes.

6.

Assets and liabilities measured at fair value

Fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, fair value accounting standards establish a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). The Company does not have any fair value measurements categorized within Level 3 as of August 4, 2023.

The following table presents the Company’s liabilities required to be measured at fair value as of August 4, 2023, aggregated by the level in the fair value hierarchy within which those measurements are classified.

    

Quoted Prices

    

    

    

 

in Active

Markets

Significant

for Identical

Other

Significant

Total Fair

Assets and

Observable

Unobservable

Value at

Liabilities

Inputs

Inputs

August 4,

(In thousands)

(Level 1)

(Level 2)

(Level 3)

2023

Liabilities:

Current and long-term obligations (a)

$

6,518,633

$

505,555

$

$

7,024,188

Deferred compensation (b)

 

50,765

 

 

 

50,765

(a)Included in the condensed consolidated balance sheet at book value as long-term obligations of $7,295,215.
(b)Reflected at fair value in the condensed consolidated balance sheet as accrued expenses and other current liabilities of $9,666 and noncurrent other liabilities of $41,099.

7.Commitments and contingencies

Legal proceedings

From time to time, the Company is a party to various legal matters in the ordinary course of its business, including actions by employees, consumers, suppliers, government agencies, or others. The Company has recorded accruals with respect to these matters, where appropriate, which are reflected in the Company’s condensed consolidated financial statements. For some matters, a liability is not probable or the amount cannot be reasonably estimated and therefore an accrual has not been made.

On January 20, 2023, a lawsuit entitled Brent Conforti, et al. v. Jeffrey C. Owen, et al. was filed in the United States District Court for the Middle District of Tennessee (Case No. 3:23-CV-00059) (“Conforti”) in which the plaintiff shareholder, purportedly on behalf and for the benefit of the Company, alleges that each of the Company’s directors violated their fiduciary duties by failing to implement and maintain a system of controls regarding the Company’s workplace safety practices. The plaintiff also alleges corporate waste and, as to the Company’s former CEO, Mr. Vasos, unjust enrichment. On February 13, 2023, the plaintiff amended the complaint to add breach of fiduciary duty allegations against certain officers of the Company, including Messrs. Owen, Vasos, Garratt, Sunderland and Wenkoff and Mss. R. Taylor and Elliott, and to expand the unjust enrichment claim to include all individual director and officer defendants (the “Individual Defendants”). The plaintiff seeks both non-monetary and monetary relief for the benefit of the Company. On April 1, 2023, the Company and the Individual Defendants moved to dismiss the Conforti action, and that motion remains pending.

Based on information currently available, the Company believes that its pending legal matters, both individually and in the aggregate, will be resolved without a material adverse effect on the Company’s consolidated financial statements as a whole. However, litigation and other legal matters involve an element of uncertainty.  Adverse decisions and settlements, including any required changes to the Company’s business, or other developments in such

11

matters could affect the consolidated operating results in future periods or result in liability or other amounts material to the Company’s annual consolidated financial statements.

8.

Segment reporting

The Company manages its business on the basis of one reportable operating segment. As of August 4, 2023, the Company’s retail store operations were primarily located within the United States, with one retail store in Mexico. Certain product sourcing and other operations are located outside the United States, which collectively are not material with regard to assets, results of operations or otherwise to the consolidated financial statements. The following net sales data is presented in accordance with accounting standards related to disclosures about segments of an enterprise.

13 Weeks Ended

26 Weeks Ended

August 4,

July 29,

August 4,

July 29,

(in thousands)

    

2023

    

2022

    

2023

    

2022

 

Classes of similar products:

Consumables

$

7,921,622

$

7,475,839

$

15,504,504

$

14,436,340

Seasonal

 

1,076,161

 

1,086,904

 

2,038,842

 

2,048,282

Home products

 

516,645

 

559,766

 

1,047,834

 

1,099,588

Apparel

 

281,753

 

303,204

 

547,833

 

592,855

Net sales

$

9,796,181

$

9,425,713

$

19,139,013

$

18,177,065

9.

Common stock transactions

On August 29, 2012, the Company’s Board of Directors (the “Board”) authorized a common stock repurchase program, which the Board has since increased on several occasions. On August 24, 2022, the Board authorized a $2.0 billion increase to the existing common stock repurchase program, bringing the cumulative total to $16.0 billion authorized under the program since its inception in 2012. The repurchase authorization has no expiration date and allows repurchases from time to time in open market transactions, including pursuant to trading plans adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, or in privately negotiated transactions. The timing, manner and number of shares repurchased will depend on a variety of factors, including price, market conditions, compliance with the covenants and restrictions under the Company’s debt agreements, cash requirements, excess debt capacity, results of operations, financial condition and other factors. Repurchases under the program may be funded from available cash or borrowings, including under the Facilities and issuance of CP Notes discussed in further detail in Note 5, or otherwise.

Pursuant to its common stock repurchase program, during the 26-week periods ended August 4, 2023 and July 29, 2022, respectively, the Company repurchased in the open market no shares of its common stock and approximately 4.9 million shares of its common stock at a total cost of $1.1 billion.

The Company paid a cash dividend of $0.59 per share during the second quarter of 2023. In August 2023, the Board declared a quarterly cash dividend of $0.59 per share, which is payable on or before October 24, 2023 to shareholders of record on October 10, 2023. The amount and declaration of future cash dividends is subject to the sole discretion of the Board and will depend upon, among other things, the Company’s results of operations, cash requirements, financial condition, contractual restrictions, excess debt capacity, and other factors that the Board may deem relevant in its sole discretion.

12

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of Dollar General Corporation

Results of Review of Interim Financial Statements

We have reviewed the accompanying condensed consolidated balance sheet of Dollar General Corporation and subsidiaries (the Company) as of August 4, 2023, the related condensed consolidated statements of income, comprehensive income, and shareholders’ equity for the thirteen and twenty-six week periods ended August 4, 2023 and July 29, 2022, the condensed consolidated statements of cash flows for the twenty-six week periods ended August 4, 2023 and July 29, 2022, and the related notes (collectively referred to as the “condensed consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of February 3, 2023, the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for the year then ended, and the related notes (not presented herein); and in our report dated March 24, 2023, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of February 3, 2023, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

These financial statements are the responsibility of the Company's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ Ernst & Young LLP

Nashville, Tennessee

August 31, 2023

13

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

General

This discussion and analysis is based on, should be read with, and is qualified in its entirety by, the accompanying unaudited condensed consolidated financial statements and related notes, as well as our consolidated financial statements and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations as contained in our Annual Report on Form 10-K for the fiscal year ended February 3, 2023. It also should be read in conjunction with the disclosure under “Cautionary Disclosure Regarding Forward-Looking Statements” in this report.

Executive Overview

We are the largest discount retailer in the United States by number of stores, with 19,488 stores located in 47 U.S. states and Mexico as of August 4, 2023, with the greatest concentration of stores in the southern, southwestern, midwestern and eastern United States. Our first store in Mexico opened in February 2023. We offer a broad selection of merchandise, including consumable products such as food, paper and cleaning products, health and beauty products and pet supplies, and non-consumable products such as seasonal merchandise, home decor and domestics, and basic apparel. Our merchandise includes national brands from leading manufacturers, as well as our own private brand selections with prices at substantial discounts to national brands. We offer our customers these national brand and private brand products at everyday low prices (typically $10 or less) in our convenient small-box locations.

We believe our convenient store formats, locations, and broad selection of high-quality products at compelling values have driven our substantial growth and financial success over the years and through a variety of economic cycles. We are mindful that the majority of our customers are value-conscious, and many have low and/or fixed incomes. As a result, we are intensely focused on helping our customers make the most of their spending dollars. Our core customers are often among the first to be affected by negative or uncertain economic conditions and among the last to feel the effects of improving economic conditions, particularly when trends are inconsistent and of an uncertain duration. The primary macroeconomic factors that affect our core customers include unemployment and underemployment rates, wage growth, changes in U.S. and global trade policy, impacts resulting from changes in U.S. government policy, and changes to certain government assistance programs (including cost of living adjustments), such as the Supplemental Nutrition Assistance Program (“SNAP”), unemployment benefits, and economic stimulus programs. In particular, our customers were impacted in the first quarter of 2023 by the elimination of the emergency allotment of SNAP benefits and lower tax refunds resulting from the elimination of COVID-related stimulus programs, and they have continued to be pressured by the impact of these events and the overall macroeconomic environment. Additionally, our customers are impacted by increases in those expenses that generally comprise a large portion of their household budgets, such as rent, healthcare, energy and fuel prices, as well as cost inflation in frequently purchased household products (including food), such as that which we have continued to experience, albeit at moderating levels, as further discussed below. Finally, significant unseasonable or unusual weather patterns or extreme weather can impact customer shopping behaviors.

We introduced an updated strategic framework in 2023 that is intended to sharpen our strategic focus in four keyways: 1) winning in rural, 2) extending our reach, 3) fueling our growth, and 4) being people powered. We call this strategy “DG Forward,” and it is focused on the combination of execution and innovation. Underlying this framework are our long-term operating priorities, which include: 1) driving profitable sales growth, 2) capturing growth opportunities, 3) enhancing our position as a low-cost operator, and 4) investing in our diverse teams through development, empowerment and inclusion.

We seek to drive profitable sales growth through initiatives aimed at increasing customer traffic and average transaction amount. As we work to provide everyday low prices and meet our customers’ affordability needs, we remain focused on enhancing our margins through pricing and markdown optimization, effective category management, distribution and transportation efficiencies, private brands penetration, global sourcing, and inventory shrink and damage reduction initiatives. Several of our strategic and other sales-driving initiatives are also designed to capture growth opportunities and are discussed in more detail below.

During the second half of 2022, we experienced higher inventory damages and shrink than we anticipated, which we believe was due primarily to the challenging macroeconomic environment, materially higher inventory levels,

14

and, as to damages, Winter Storm Elliott in December. In addition, we believe some portion of the increase in damages was a residual impact of the warehouse capacity constraints and associated store and supply chain inefficiencies we faced during that time period. We continued to experience both higher shrink and inventory damages in the first half of 2023 and anticipate shrink will continue to pressure our results through the duration of 2023, primarily due to higher inventory levels.

Historically, sales in our consumables category, which tend to have lower gross margins, have been the key drivers of net sales and customer traffic, while sales in our non-consumables categories, which tend to have higher gross margins, have contributed to more profitable sales growth and an increase in average transaction amount. Our sales mix has continued to shift toward consumables in recent quarters, and this trend continued in the first half of 2023. While we expect some sales mix challenges to persist through at least the duration of 2023, certain of our initiatives are intended to address them; however, there can be no assurances that these efforts will be successful.

We continue to implement and invest in certain strategic initiatives that we believe will help drive profitable sales growth with both new and existing customers and capture long-term growth opportunities. Such opportunities include providing our customers with additional shopping access points and even greater value and convenience by leveraging and developing digital tools and technology, such as our Dollar General app, which contains a variety of tools to enhance the in-store shopping experience. Additionally, our partnership with a third-party delivery service is available in the majority of our stores, and we continue to grow our DG Media Network, which is our platform for connecting brand partners with our customers to drive even greater value for each.

Further, we are continuing to grow the footprint of pOpshelf, a unique retail concept focused on categories such as seasonal and home décor, health and beauty, home cleaning supplies, and party and entertainment goods. At the end of the second quarter of 2023, we operated 190 standalone pOpshelf locations. Recognizing the impact of the ongoing macroeconomic pressures on the pOpshelf customer and shopping occasion, we (1) previously announced our planned reduction in pOpshelf openings in 2023, and now plan to operate approximately 230 pOpshelf locations by the end of the fiscal year; and (2) are continuing to re-evaluate our targeted number of pOpshelf stores by the end of 2025. We continue to believe this concept represents a significant growth opportunity over the long term.

Our “DG Fresh” initiative, a self-distribution model for frozen and refrigerated products that is designed to reduce product costs, enhance item assortment, improve our in-stock position, and enhance sales, has positively contributed to our sales and gross margin performance since we completed the initial rollout in 2021. Moving forward, we plan to focus on additional optimization of the distribution footprint and product assortment within DG Fresh with the goal to further drive profitable sales growth.

We also have a health initiative, branded as “DG Well Being”, with the goal of increasing access to basic healthcare products, and ultimately services over time, particularly in rural communities. The initial focus of this initiative is a significantly expanded health product assortment in certain stores, primarily those in our larger formats.

To support our other operating priorities, we remain focused on capturing growth opportunities. In the second quarter of 2023, we opened a total of 215 new stores, remodeled 614 stores, and relocated 20 stores. Reflecting the previously announced reduction in planned pOpshelf stores in fiscal 2023, we plan to open approximately 990 new stores in the United States (including any pOpshelf stores), remodel approximately 2,000 stores, and relocate approximately 120 stores, for a total of 3,110 real estate projects. We opened our first store in Mexico in the first quarter of fiscal 2023. Our updated goal is to operate up to 10 stores in Mexico by the end of fiscal 2023, all of which would be incremental to our planned 990 new store openings.

We continue to innovate within our channel and utilize the most productive of our various Dollar General store formats based on the specific market opportunity. We expect store format innovation to allow us to capture additional growth opportunities within our existing markets. We are using two larger format stores (approximately 8,500 square feet and 9,500 square feet, respectively), and expect the 8,500 square foot format, along with our existing Dollar General Plus format of a similar size, to continue as our base prototypes for the majority of new stores in 2023, replacing our traditional 7,300 square foot format and higher-cooler count Dollar General Traditional Plus format. The larger formats allow for expanded high-capacity-cooler counts, an extended queue line, and a broader product assortment, including an enhanced non-consumable offering, a larger health and beauty section, and produce in select stores. We continue to incorporate lessons learned from our various store formats and layouts into our existing store base. These lessons

15

contribute to innovation in developing new formats, with a goal of driving increased customer traffic, average transaction amount, same-store sales and overall store productivity.

We have established a position as a low-cost operator, always seeking ways to reduce or control costs that do not affect our customers’ shopping experiences. We plan to continue enhancing this position over time while employing ongoing cost discipline to reduce certain expenses as a percentage of sales. Nonetheless, we seek to maintain flexibility to invest in the business as necessary to enhance our long-term competitiveness and profitability.

We are continuing to deploy “Fast Track,” an initiative aimed at further enhancing our convenience proposition and in-stock position as well as creating labor efficiencies within our stores. The completed portion of the first phase of Fast Track involved sorting process optimization within our non-refrigerated distribution centers, as well as increased shelf-ready packaging, to allow for greater store-level stocking efficiencies, while the current focus involves adding a self-checkout option, which we now have in the majority of our stores. These and the other strategic initiatives discussed above have required and will continue to require us to incur upfront expenses for which there may not be an immediate return in terms of sales or enhanced profitability.

To further optimize our cost structure and facilitate greater operational control within our supply chain, we plan to continue expanding the size of our private tractor fleet in 2023. We had more than 1,800 tractors in our fleet at the end of the second quarter of 2023, and our goal is to have more than 2,000 tractors in the fleet by the end of 2023.

Certain of our operating expenses, such as wage rates and occupancy costs, have continued to increase in recent years, due primarily to market forces, including labor availability, increases in minimum wage rates and increases in property rents. Further federal, state and/or local minimum wage increases could have a material negative impact on our operating expenses, although the magnitude and timing of such impact is uncertain. In fiscal 2023, we now plan to invest an additional $50 million in retail labor, primarily through labor hours, bringing the total investment in fiscal year 2023 to approximately $150 million, to further enhance our store standards and compliance efforts as well as the customer and associate experience in our stores. A portion of this investment was made in the first half of the fiscal year. We believe these investments will also elevate consistency of experience in our stores, and amplify the potential success of our strategic initiatives, while driving greater on-shelf availability and market share gains.

In addition to our planned labor investment in 2023, we expect to take additional actions in the third and fourth quarters to improve execution in our supply chain and stores and better serve our customers. Most significantly, we plan to accelerate the pace of our inventory reduction efforts, including additional promotional markdowns primarily on certain non-consumable products to return to more optimal inventory levels sooner than we believe the current pace would deliver. We expect these actions and investments will negatively impact operating profit by up to $170 million in 2023 but will further strengthen our position to drive growth and serve our customers.

While we believe the growth rate of inflation is moderating, we expect some continued inflationary pressures in the near term, which will continue to affect us as well as our vendors and customers and may result in continued pressure to our operating results. To the extent that the macroeconomic inflationary pressures result in a recessionary environment, we may experience adverse effects on our business, results of operations and cash flows. Moreover, recent increases in market interest rates have had, and will continue to have, a negative impact on our interest expense, both with respect to issuances of commercial paper notes and other indebtedness. In addition, the Department of Education’s COVID-19 pandemic student loan forbearance program is scheduled to end in September 2023, with payments expected to resume in October 2023. The potential impact on our customer and our business is unknown, and we can make no assurance that it will not be material.

Our diverse teams are a competitive advantage, and we proactively seek ways to continue investing in their development. Our goal is to create an environment that attracts, develops, and retains talented personnel, particularly at the store manager level, because employees who are promoted from within our company generally have longer tenures and are greater contributors to improvements in our financial performance.

To further enhance shareholder returns, we have continued to pay quarterly cash dividends. As planned, we did not repurchase any shares during the first half of 2023. To preserve our investment grade credit rating and maintain financial flexibility, we do not plan to repurchase shares during fiscal 2023. However, our overall capital allocation priorities remain unchanged, and we expect to continue paying quarterly cash dividends. The declaration and amount of future dividends are subject to Board discretion and approval.

16

We utilize key performance indicators (“KPIs”) in the management of our business. Our KPIs include same-store sales, average sales per square foot, and inventory turnover. Same-store sales are calculated based upon our stores that were open at least 13 full fiscal months and remain open at the end of the reporting period. We include stores that have been remodeled, expanded or relocated in our same-store sales calculation. Changes in same-store sales are calculated based on the comparable 52 calendar weeks in the current and prior years. The method of calculating same-store sales varies across the retail industry. As a result, our calculation of same-store sales is not necessarily comparable to similarly titled measures reported by other companies. Average sales per square foot is calculated based on total sales for the preceding 12 months as of the ending date of the reporting period divided by the average selling square footage during the period, including the end of the fiscal year, the beginning of the fiscal year, and the end of each of our three interim fiscal quarters. Inventory turnover is calculated based on total cost of goods sold for the preceding four quarters divided by the average inventory balance as of the ending date of the reporting period, including the end of the fiscal year, the beginning of the fiscal year, and the end of each of our three interim fiscal quarters. Each of these measures is commonly used by investors in retail companies to measure the health of the business. We use these measures to maximize profitability and for decisions about the allocation of resources.

Highlights of our 2023 second quarter results of operations, compared to the 2022 second quarter, and our financial condition at August 4, 2023, are set forth below. Basis points amounts referred to below are equal to 0.01% as a percentage of net sales.

Net sales increased 3.9% to $9.80 billion driven by new stores and sales in same-stores which decreased 0.1%. Average sales per square foot for all stores over the 53-week period ended August 4, 2023 were $272.

Gross profit, as a percentage of net sales, was 31.1% in the 2023 period and 32.3% in the 2022 period, a decrease of 126 basis points, primarily reflecting lower inventory markups and increased shrink, markdowns, and inventory damages.

SG&A expense, as a percentage of net sales, was 24.0% in the 2023 period compared to 22.6% in the 2022 period, an increase of 136 basis points, primarily due to higher retail labor, utilities, and depreciation and amortization as a percentage of net sales.

Operating profit decreased 24.2% to $692.3 million in the 2023 period compared to $913.4 million in the 2022 period.

Interest expense increased by $41.2 million in the 2023 period compared to the 2022 period driven by higher average borrowings and higher interest rates.

The effective income tax rate for the 2023 period was 22.9% compared to a rate of 22.1% for the 2022 period primarily due to a higher state effective tax rate.

Net income was $468.8 million, or $2.13 per diluted share, in the 2023 period compared to net income of $678.0 million, or $2.98 per diluted share, in the 2022 period.

Highlights of the year-to-date period of 2023 include:

Cash generated from operating activities was $726.7 million for the 2023 period, a decrease of $221.3 million, or 23.3%, from the comparable 2022 period.

Total cash dividends of $258.9 million, or $1.18 per share, were paid during the 2023 period, compared to $249.5 million, or $1.10 per share, in the comparable 2022 period.

Inventory turnover was 3.7 times on a rolling four-quarter basis. On a per store basis, inventories at August 4, 2023 increased by 3.4% compared to the balances at July 29, 2022.

17

The above discussion is a summary only. Readers should refer to the detailed discussion of our results of operations below in the current year period as compared with the prior year period as well as our financial condition at August 4, 2023.

Results of Operations

Accounting Periods. We utilize a 52-53 week fiscal year convention that ends on the Friday nearest to January 31. The following text contains references to years 2023 and 2022, which represent the 52-week fiscal year ending February 2, 2024 and the 53-week fiscal year ended February 3, 2023, respectively. References to the second quarter accounting periods for 2023 and 2022 contained herein refer to the 13-week accounting periods ended August 4, 2023 and July 29, 2022, respectively.

Seasonality. The nature of our business is somewhat seasonal. Primarily because of Christmas-related merchandise sales, operating profit in our fourth quarter (November, December and January) has historically been higher than operating profit achieved in each of the first three quarters of the fiscal year. Expenses, and to a greater extent operating profit, vary by quarter. Results of a period shorter than a full year may not be indicative of results expected for the entire year. Furthermore, the seasonal nature of our business may affect comparisons between periods.

The following table contains results of operations data for the second 13-week periods and the 26-week periods of 2023 and 2022, and the dollar and percentage variances among those periods:

13 Weeks Ended

2023 vs. 2022

26 Weeks Ended

2023 vs. 2022

 

(amounts in millions, except

    

August 4,

    

July 29,

    

Amount

    

%

    

August 4,

    

July 29,

    

Amount

    

%

 

  

per share amounts)

2023

2022

Change

Change

2023

2022

Change

Change

 

Net sales by category:

Consumables

$

7,921.6

$

7,475.8

$

445.8

6.0

%  

$

15,504.5

 

$

14,436.3

 

$

1,068.2

 

7.4

%

% of net sales

 

80.86

%  

 

79.31

%  

 

81.02

%  

79.42

%  

Seasonal

 

1,076.2

 

1,086.9

 

(10.7)

(1.0)

 

2,038.8

2,048.3

 

(9.4)

 

(0.5)

% of net sales

 

10.99

%  

 

11.53

%  

 

10.65

%  

11.27

%  

Home products

 

516.6

 

559.8

 

(43.1)

(7.7)

 

1,047.8

1,099.6

 

(51.8)

 

(4.7)

% of net sales

 

5.27

%  

 

5.94

%  

 

5.47

%  

6.05

%  

Apparel

 

281.8

 

303.2

 

(21.5)

(7.1)

 

547.8

592.9

 

(45.0)

 

(7.6)

% of net sales

 

2.88

%  

 

3.22

%  

 

2.86

%  

3.26

%  

Net sales

$

9,796.2

$

9,425.7

$

370.5

3.9

%  

$

19,139.0

$

18,177.1

$

961.9

 

5.3

%

Cost of goods sold

 

6,751.5

 

6,377.5

 

374.0

5.9

 

13,138.9

12,390.5

 

748.4

 

6.0

% of net sales

 

68.92

%  

 

67.66

%  

 

68.65

%  

68.17

%  

Gross profit

 

3,044.7

 

3,048.2

 

(3.5)

(0.1)

 

6,000.2

5,786.6

 

213.6

 

3.7

% of net sales

 

31.08

%  

 

32.34

%  

 

31.35

%  

31.83

%  

Selling, general and administrative expenses

 

2,352.4

 

2,134.8

 

217.6

10.2

 

4,567.0

4,127.0

 

440.0

 

10.7

% of net sales

 

24.01

%  

 

22.65

%  

 

23.86

%  

22.70

%  

Operating profit

 

692.3

 

913.4

 

(221.1)

(24.2)

 

1,433.2

1,659.6

 

(226.4)

 

(13.6)

% of net sales

 

7.07

%  

 

9.69

%  

 

7.49

%  

9.13

%  

Interest expense

 

84.3

 

43.1

 

41.2

95.7

 

167.4

82.8

 

84.6

 

102.2

% of net sales

 

0.86

%  

 

0.46

%  

 

0.87

%  

0.46

%  

Income before income taxes

 

608.0

 

870.3

 

(262.4)

(30.1)

 

1,265.8

1,576.8

 

(311.0)

 

(19.7)

% of net sales

 

6.21

%  

 

9.23

%  

 

6.61

%  

8.67

%  

Income tax expense

 

139.1

 

192.3

 

(53.2)

(27.6)

 

282.6

346.1

 

(63.5)

 

(18.4)

% of net sales

 

1.42

%  

 

2.04

%  

 

1.48

%  

1.90

%  

Net income

$

468.8

$

678.0

$

(209.2)

(30.9)

%  

$

983.2

$

1,230.7

$

(247.5)

 

(20.1)

%

% of net sales

 

4.79

%  

 

7.19

%  

 

5.14

%  

6.77

%  

Diluted earnings per share

$

2.13

$

2.98

$

(0.85)

(28.5)

%  

$

4.47

$

5.39

$

(0.92)

 

(17.1)

%

18

13 WEEKS ENDED AUGUST 4, 2023 AND JULY 29, 2022

Net Sales. The net sales increase in the 2023 period was primarily due to sales from new stores partially offset by a same-store sales decrease of 0.1% compared to the 2022 period and the impact of store closures. For the 2023 period, there were 18,325 same-stores, which accounted for sales of $9.4 billion. The decrease in same-store sales primarily reflects a decrease in customer traffic partially offset by an increase in average transaction amount driven by higher average item retail prices partially offset by a decline in items per transaction. Same-store sales increased in the consumables category, and declined in the apparel, home products and seasonal categories.

Gross Profit. For the 2023 period, gross profit decreased by 0.1%, and as a percentage of net sales decreased by 126 basis points to 31.1%, compared to the 2022 period, driven primarily by lower inventory markups and increased shrink, markdowns, and inventory damages. Additionally, our consumables category generally has a lower gross profit rate than our other product categories and in the current period, consumables sales increased while non-consumables sales decreased, which also contributed to the decrease in the gross profit rate. Partially offsetting the factors which decreased our overall gross profit rate were a lower LIFO provision and decreased transportation costs.

Selling, General & Administrative Expenses (“SG&A”). SG&A was 24.0% as a percentage of net sales in the 2023 period compared to 22.6% in the comparable 2022 period, an increase of 136 basis points. The primary expenses that were a higher percentage of net sales in the current year period were retail labor, utilities, depreciation and amortization and rent, which were partially offset by a decrease in incentive compensation.

Interest Expense. Interest expense increased by $41.2 million to $84.3 million in the 2023 period primarily due to higher outstanding borrowings and higher interest rates.

Income Taxes. The effective income tax rate for the 2023 period was 22.9% compared to a rate of 22.1% for the 2022 period, which represents a net increase of 0.8 percentage points. The tax rate for the 2023 period was higher than the comparable 2022 period primarily due to a higher state effective tax rate and an increase in the valuation allowance against foreign net operating losses.

26 WEEKS ENDED AUGUST 4, 2023 AND JULY 29, 2022

Net Sales. The net sales increase in the 2023 period was primarily due to sales from new stores, as well as a same-store sales increase of 0.7% compared to the 2022 period, partially offset by the impact of store closures. For the 2023 period, there were 18,325 same-stores which accounted for sales of $18.3 billion. The increase in same-store sales primarily reflects an increase in average transaction amount driven by higher average item retail prices partially offset by a decline in items per transaction as well as a decrease in customer traffic. Same-store sales increased in the consumables category, and declined in the apparel, seasonal and home products categories.

Gross Profit. For the 2023 period, gross profit increased by 3.7%, and as a percentage of net sales decreased by 48 basis points to 31.4%, compared to the 2022 period, driven primarily by increased shrink, markdowns, and inventory damages and lower inventory markups. In addition, consumables sales increased while non-consumables sales decreased in the current year, which also contributed to the decrease in the gross profit rate. These factors were partially offset by a lower LIFO provision and decreased transportation costs.

Selling, General & Administrative Expenses. SG&A was 23.9% as a percentage of net sales in the 2023 period compared to 22.7% in the comparable 2022 period, an increase of 116 basis points. The primary expenses that were a higher percentage of net sales in the current year period were retail labor, depreciation and amortization, repairs and maintenance, and utilities, partially offset by a decrease in incentive compensation.

Interest Expense. Interest expense increased by $84.6 million to $167.4 million in the 2023 period primarily due to higher outstanding debt balances and higher interest rates.

Income Taxes. The effective income tax rate for the 2023 period was 22.3% compared to a rate of 22.0% for the 2022 period which represents a net increase of 0.3 percentage points. The tax rate for the 2023 period was higher than the comparable 2022 period primarily due to a reduced tax benefit from stock-based compensation in the 2023 period when compared to the 2022 period.

19

Liquidity and Capital Resources

At August 4, 2023, we had a $2.0 billion senior unsecured revolving credit agreement (the “Revolving Facility”), a $750.0 million 364-day unsecured revolving credit facility (the “364-Day Revolving Facility” and, together with the Revolving Facility, the “Facilities”), $6.9 billion aggregate principal amount of outstanding senior notes, and a commercial paper program that may provide borrowing availability in the form of commercial paper notes (“CP Notes”) of up to $2.0 billion. At August 4, 2023, we had total consolidated outstanding long-term obligations of $7.3 billion and no short-term borrowings. All of our material borrowing arrangements are described in greater detail below. Our borrowing availability under the Revolving Facility may be effectively limited by our CP Notes as further described below.

We believe our cash flow from operations and existing cash balances, combined with availability under the Facilities, the CP Notes and access to the debt markets, will provide sufficient liquidity to fund our current obligations, projected working capital requirements, capital spending, anticipated dividend payments, and, if applicable, share repurchases for a period that includes the next twelve months as well as the next several years. However, our ability to maintain sufficient liquidity may be affected by numerous factors, many of which are outside of our control. Depending on our liquidity levels, conditions in the capital markets and other factors, we may from time to time consider the issuance of debt, equity or other securities, the proceeds of which could provide additional liquidity for our operations.

For the remainder of fiscal 2023, we anticipate potential combined borrowings under the Facilities and our CP Notes to be a maximum of approximately $1.0 billion outstanding at any one time.

Revolving Credit Facility

Our Revolving Facility consists of a $2.0 billion senior unsecured revolving credit facility of which up to $100.0 million is available for the issuance of letters of credit and which is scheduled to mature on December 2, 2026. Borrowings under the Revolving Facility bear interest at a rate equal to an applicable interest rate margin plus, at our option, either (a) Adjusted Term SOFR (which is Term SOFR, as published by CME Group Benchmark Administration Limited, plus a credit spread adjustment of 0.10%) or (b) a base rate (which is usually equal to the prime rate). The applicable interest rate margin for borrowings as of August 4, 2023 was 1.015% for Adjusted Term SOFR borrowings and 0.015% for base-rate borrowings. We must also pay a facility fee, payable on any used and unused commitment amounts of the Revolving Facility, and customary fees on letters of credit issued under the Revolving Facility. As of August 4, 2023, the facility fee rate was 0.11%. The applicable interest rate margins for borrowings, the facility fees and the letter of credit fees under the Revolving Facility are subject to adjustment from time to time based on our long-term senior unsecured debt ratings.

We entered into the 364-Day Revolving Facility on January 31, 2023, which will expire on January 30, 2024. Borrowings under the 364-Day Revolving Facility bear interest at a rate equal to an applicable interest rate margin plus, at our option, either (a) Adjusted Term SOFR (which is Term SOFR, as published by CME Group Benchmark Administration Limited, plus a credit spread adjustment of 0.10%) or (b) a base rate (which is usually equal to the prime rate). We are also required to pay a facility fee to the lenders under the 364-Day Revolving Facility for any used and unused commitments. As of August 4, 2023, the applicable interest rate margin for Adjusted Term SOFR loans was 1.035% and the facility fee rate was 0.09% per annum. The applicable interest rate margins for borrowings and the facility fees under the 364-Day Revolving Facility are subject to adjustment from time to time based on our long-term senior unsecured debt ratings.

The credit agreements governing the Facilities contain a number of customary affirmative and negative covenants that, among other things, restrict, subject to certain exceptions, our (including our subsidiaries’) ability to: incur additional liens; sell all or substantially all of our assets; consummate certain fundamental changes or change in our lines of business; and incur additional subsidiary indebtedness. The credit agreements governing the Facilities also contain financial covenants that require the maintenance of a minimum fixed charge coverage ratio and a maximum leverage ratio. As of August 4, 2023, we were in compliance with all such covenants. The credit agreements governing each of the Facilities also contain customary events of default.

As of August 4, 2023, we had no outstanding borrowings, no outstanding letters o