Form 10-Q DOLLAR GENERAL CORP For: Oct 29

December 2, 2021 7:08 AM EST

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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 October 29, 2021

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 231,706,504 shares of common stock outstanding on November 26, 2021.

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

25

Item 4. Controls and Procedures

25

Part II

Other Information

Item 1. Legal Proceedings

26

Item 1A. Risk Factors

26

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

26

Item 6. Exhibits

26

Cautionary Disclosure Regarding Forward-Looking Statements

27

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)

    

October 29,

    

January 29,

 

2021

2021

 

ASSETS

Current assets:

Cash and cash equivalents

$

488,662

$

1,376,577

Merchandise inventories

 

5,298,859

 

5,247,477

Income taxes receivable

120,374

90,760

Prepaid expenses and other current assets

 

273,939

 

199,405

Total current assets

 

6,181,834

 

6,914,219

Net property and equipment

 

4,177,871

 

3,899,997

Operating lease assets

9,982,666

9,473,330

Goodwill

 

4,338,589

 

4,338,589

Other intangible assets, net

 

1,199,780

 

1,199,870

Other assets, net

 

44,562

 

36,619

Total assets

$

25,925,302

$

25,862,624

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Current portion of operating lease liabilities

$

1,157,245

$

1,074,079

Accounts payable

 

3,532,639

 

3,614,089

Accrued expenses and other

 

1,039,222

 

1,006,552

Income taxes payable

 

11,393

 

16,063

Total current liabilities

 

5,740,499

 

5,710,783

Long-term obligations

 

4,127,426

 

4,130,975

Long-term operating lease liabilities

8,808,514

8,385,388

Deferred income taxes

 

781,231

 

710,549

Other liabilities

 

277,831

 

263,691

Commitments and contingencies

Shareholders’ equity:

Preferred stock

 

Common stock

 

202,743

 

210,687

Additional paid-in capital

 

3,527,285

 

3,446,612

Retained earnings

 

2,461,208

 

3,006,102

Accumulated other comprehensive loss

 

(1,435)

 

(2,163)

Total shareholders’ equity

 

6,189,801

 

6,661,238

Total liabilities and shareholders' equity

$

25,925,302

$

25,862,624

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 39 weeks ended

    

October 29,

    

October 30,

    

October 29,

    

October 30,

 

2021

2020

2021

2020

Net sales

$

8,517,839

$

8,199,625

$

25,569,001

$

25,332,315

Cost of goods sold

 

5,898,400

 

5,631,385

 

17,456,235

 

17,350,148

Gross profit

 

2,619,439

 

2,568,240

 

8,112,766

 

7,982,167

Selling, general and administrative expenses

 

1,953,851

 

1,795,110

 

5,688,760

 

5,299,626

Operating profit

 

665,588

 

773,130

 

2,424,006

 

2,682,541

Interest expense

 

39,198

 

40,298

 

119,020

 

110,117

Income before income taxes

 

626,390

 

732,832

 

2,304,986

 

2,572,424

Income tax expense

 

139,359

 

158,572

 

503,187

 

560,117

Net income

$

487,031

$

574,260

$

1,801,799

$

2,012,307

Earnings per share:

Basic

$

2.09

$

2.32

$

7.66

$

8.06

Diluted

$

2.08

$

2.31

$

7.61

$

8.00

Weighted average shares outstanding:

Basic

 

232,491

 

247,131

 

235,321

 

249,731

Diluted

234,026

249,063

236,911

251,627

Dividends per share

$

0.42

$

0.36

$

1.26

$

1.08

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 39 weeks ended

October 29,

October 30,

October 29,

October 30,

    

2021

    

2020

    

2021

    

2020

Net income

$

487,031

$

574,260

    

$

1,801,799

$

2,012,307

Unrealized net gain (loss) on hedged transactions, net of related income tax expense (benefit) of $87, $87, $260, and $260, respectively

 

243

 

243

    

 

728

 

729

Comprehensive income

$

487,274

$

574,503

    

$

1,802,527

$

2,013,036

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

Loss

Total

Balances, July 30, 2021

 

233,305

$

204,142

$

3,504,850

$

2,429,821

$

(1,678)

$

6,137,135

Net income

 

 

 

 

487,031

 

 

487,031

Dividends paid, $0.42 per common share

(97,313)

(97,313)

Unrealized net gain (loss) on hedged transactions

 

 

 

 

 

243

 

243

Share-based compensation expense

 

 

 

19,615

 

 

 

19,615

Repurchases of common stock

 

(1,633)

 

(1,428)

 

 

(358,331)

 

 

(359,759)

Other equity and related transactions

 

34

 

29

 

2,820

 

 

 

2,849

Balances, October 29, 2021

 

231,706

$

202,743

$

3,527,285

$

2,461,208

$

(1,435)

$

6,189,801

Balances, July 31, 2020

 

249,033

$

217,906

$

3,381,819

$

3,758,995

$

(2,649)

$

7,356,071

Net income

 

 

 

 

574,260

 

 

574,260

Dividends paid, $0.36 per common share

(88,362)

(88,362)

Unrealized net gain (loss) on hedged transactions

 

 

 

 

 

243

 

243

Share-based compensation expense

 

 

 

16,889

 

 

 

16,889

Repurchases of common stock

 

(4,408)

 

(3,858)

 

 

(898,072)

 

 

(901,930)

Other equity and related transactions

 

375

 

327

 

28,021

 

 

 

28,348

Balances, October 30, 2020

 

245,000

$

214,375

$

3,426,729

$

3,346,821

$

(2,406)

$

6,985,519

Balances, January 29, 2021

 

240,785

$

210,687

$

3,446,612

$

3,006,102

$

(2,163)

$

6,661,238

Net income

 

 

 

 

1,801,799

 

 

1,801,799

Dividends paid, $1.26 per common share

(295,449)

(295,449)

Unrealized net gain (loss) on hedged transactions

 

 

 

 

 

728

 

728

Share-based compensation expense

 

 

 

59,518

 

 

 

59,518

Repurchases of common stock

 

(9,901)

 

(8,663)

 

 

(2,051,244)

 

 

(2,059,907)

Other equity and related transactions

 

822

 

719

 

21,155

 

 

 

21,874

Balances, October 29, 2021

 

231,706

$

202,743

$

3,527,285

$

2,461,208

$

(1,435)

$

6,189,801

Balances, January 31, 2020

 

251,936

$

220,444

$

3,322,531

$

3,162,660

$

(3,135)

$

6,702,500

Net income

 

 

 

 

2,012,307

 

 

2,012,307

Dividends paid, $1.08 per common share

(268,638)

(268,638)

Unrealized net gain (loss) on hedged transactions

 

 

 

 

 

729

 

729

Share-based compensation expense

 

 

 

51,366

 

 

 

51,366

Repurchases of common stock

 

(8,043)

 

(7,038)

 

 

(1,559,508)

 

 

(1,566,546)

Other equity and related transactions

 

1,107

 

969

 

52,832

 

 

 

53,801

Balances, October 30, 2020

 

245,000

$

214,375

$

3,426,729

$

3,346,821

$

(2,406)

$

6,985,519

See notes to condensed consolidated financial statements.

5

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

For the 39 weeks ended

 

    

October 29,

    

October 30,

 

2021

2020

 

Cash flows from operating activities:

Net income

$

1,801,799

$

2,012,307

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

Depreciation and amortization

 

474,945

 

424,466

Deferred income taxes

 

70,422

 

11,207

Noncash share-based compensation

 

59,518

 

51,366

Other noncash (gains) and losses

 

114,922

 

9,266

Change in operating assets and liabilities:

Merchandise inventories

 

(160,097)

 

(352,261)

Prepaid expenses and other current assets

 

(70,038)

 

(13,525)

Accounts payable

 

(61,756)

 

919,806

Accrued expenses and other liabilities

 

36,910

 

357,320

Income taxes

 

(34,284)

 

(32,251)

Other

 

(5,625)

 

(4,161)

Net cash provided by (used in) operating activities

 

2,226,716

 

3,383,540

Cash flows from investing activities:

Purchases of property and equipment

 

(779,406)

 

(697,598)

Proceeds from sales of property and equipment

 

3,968

 

1,587

Net cash provided by (used in) investing activities

 

(775,438)

 

(696,011)

Cash flows from financing activities:

Issuance of long-term obligations

 

 

1,494,315

Repayments of long-term obligations

 

(5,712)

 

(2,564)

Net increase (decrease) in commercial paper outstanding

(425,200)

Borrowings under revolving credit facilities

 

 

300,000

Repayments of borrowings under revolving credit facilities

 

 

(300,000)

Costs associated with issuance of debt

 

 

(13,574)

Repurchases of common stock

 

(2,059,907)

 

(1,566,546)

Payments of cash dividends

(295,420)

(268,630)

Other equity and related transactions

 

21,846

 

53,793

Net cash provided by (used in) financing activities

 

(2,339,193)

 

(728,406)

Net increase (decrease) in cash and cash equivalents

 

(887,915)

 

1,959,123

Cash and cash equivalents, beginning of period

 

1,376,577

 

240,320

Cash and cash equivalents, end of period

$

488,662

$

2,199,443

Supplemental noncash investing and financing activities:

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

$

1,373,392

$

1,319,711

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

$

98,421

$

100,288

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 January 29, 2021 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 January 29, 2021 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 2021 fiscal year is scheduled to be a 52-week accounting period ending on January 28, 2022, and the 2020 fiscal year was a 52-week accounting period that ended on January 29, 2021.

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 October 29, 2021 and results of operations for the 13-week and 39-week accounting periods ended October 29, 2021 and October 30, 2020 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. In addition, the effect of the COVID-19 pandemic on consumer behavior beginning in the first quarter of 2020 resulted in a departure from seasonal norms experienced in recent years and may continue to disrupt the historical quarterly cadence of the Company’s results of operations for an unknown period of time.

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 $60.5 million and $1.6 million in the respective 13-week periods, and $108.7 million and $3.3 million in the respective 39-week periods, ended October 29, 2021 and October 30, 2020. In addition, ongoing estimates of inventory shrinkage and initial markups and markdowns are included in the interim cost of goods sold calculation.

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, 2022. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

7

2.

Earnings per share

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

13 Weeks Ended October 29, 2021

13 Weeks Ended October 30, 2020

   

    

Weighted

   

  

  

   

Weighted

   

 

Net

Average

Per Share

Net

Average

Per Share

Income

Shares

Amount

Income

Shares

Amount

Basic earnings per share

$

487,031

 

232,491

$

2.09

$

574,260

 

247,131

$

2.32

Effect of dilutive share-based awards

 

1,535

 

1,932

Diluted earnings per share

$

487,031

 

234,026

$

2.08

$

574,260

 

249,063

$

2.31

39 Weeks Ended October 29, 2021

39 Weeks Ended October 30, 2020

   

    

Weighted

   

  

  

   

Weighted

   

 

Net

Average

Per Share

Net

Average

Per Share

Income

Shares

Amount

Income

Shares

Amount

Basic earnings per share

$

1,801,799

 

235,321

$

7.66

$

2,012,307

 

249,731

$

8.06

Effect of dilutive share-based awards

 

1,590

 

1,896

Diluted earnings per share

$

1,801,799

 

236,911

$

7.61

$

2,012,307

 

251,627

$

8.00

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 less than 0.1 million in each of the respective 13-week periods, and less than 0.1 million and 0.2 million in the respective 39-week periods, ended October 29, 2021 and October 30, 2020.

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 2017 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 2018 through 2020 fiscal year income tax filings. The Company has various state income tax examinations that are currently in progress. Generally, with few exceptions, the Company’s 2017 and later tax years remain open for examination by the various state taxing authorities.

As of October 29, 2021, the total reserves for uncertain tax benefits, interest expense related to income taxes and potential income tax penalties were $8.3 million, $0.7 million and $0.0 million, respectively, for a total of $9.0 million. This total amount 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 $2.2 million in the coming twelve months as a result of expiring statutes of limitations. As of October 29, 2021, approximately $8.3 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 39-week periods ended October 29, 2021 were 22.2% and 21.8% respectively compared to rates of 21.6% and 21.8% for the 13-week and 39-week periods ended October 30,

8

2020. The primary factors affecting the income tax rates for the 13-week and 39-week periods in 2021 compared to the 13-week and 39-week periods in 2020 were changes in the state effective tax rate, a reduced benefit associated with share-based compensation, an increase in uncertain tax positions and greater benefit associated with federal tax credits.

4.Leases

As of October 29, 2021, 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 October 29, 2021, the weighted-average remaining lease term for the Company’s operating leases was 9.8 years, and the weighted average discount rate for such leases was 3.7%. Operating lease costs are reflected as selling, general and administrative costs in the condensed consolidated statements of income. For the 39-week periods ended October 29, 2021 and October 30, 2020, such costs were $1.11 billion and $1.03 billion, respectively. Cash paid for amounts included in the measurement of operating lease liabilities of $1.11 billion and $1.03 billion, respectively, were reflected in cash flows from operating activities in the condensed consolidated statements of cash flows for the 39-week periods ended October 29, 2021 and October 30, 2020.

5.

Current and long-term obligations

Current and long-term obligations consist of the following:

    

October 29,

    

January 29,

 

(In thousands)

2021

2021

 

Revolving Facility

$

$

3.250% Senior Notes due April 15, 2023 (net of discount of $386 and $583)

 

899,614

 

899,417

4.150% Senior Notes due November 1, 2025 (net of discount of $352 and $412)

499,648

499,588

3.875% Senior Notes due April 15, 2027 (net of discount of $262 and $294)

599,738

599,706

4.125% Senior Notes due May 1, 2028 (net of discount of $348 and $383)

499,652

499,617

3.500% Senior Notes due April 3, 2030 (net of discount of $579 and $623)

997,086

999,377

4.125% Senior Notes due April 3, 2050 (net of discount of $4,879 and $4,945)

495,121

495,055

Unsecured commercial paper notes

Other

160,001

164,365

Debt issuance costs, net

 

(23,434)

 

(26,150)

$

4,127,426

$

4,130,975

On September 10, 2019, the Company entered into an amended and restated credit agreement, providing for a $1.25 billion unsecured five-year revolving credit facility (the “Revolving Facility”) of which up to $175.0 million is available for letters of credit.

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) LIBOR or (b) a base rate (which is usually equal to the prime rate). The applicable interest rate margin for borrowings as of October 29, 2021 was 1.015% for LIBOR 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 October 29, 2021, 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 Revolving Facility contains 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 Revolving Facility also contains financial covenants which require the maintenance of a minimum fixed charge coverage ratio and a maximum leverage ratio. As of October 29, 2021, the Company was in compliance with all such covenants. The Revolving Facility also contains customary events of default.

9

As of October 29, 2021, the Company had no outstanding borrowings, outstanding letters of credit of $1.9 million, and borrowing availability of approximately $1.25 billion under the Revolving Facility that, due to its intention to maintain borrowing availability related to the commercial paper program described below, could contribute incremental liquidity of $1.07 billion. In addition, as of October 29, 2021, the Company had outstanding letters of credit of $49.8 million which were issued pursuant to separate agreements.

As of October 29, 2021, 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 $1.0 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 October 29, 2021, the Company’s condensed consolidated balance sheet reflected no outstanding unsecured CP Notes. CP Notes totaling $181.0 million were held by a wholly-owned subsidiary of the Company and are therefore not reflected on the condensed consolidated balance sheets.

On April 3, 2020, the Company issued $1.0 billion aggregate principal amount of 3.5% senior notes due 2030 (the “2030 Senior Notes”), net of discount of $0.7 million, and $500.0 million aggregate principal amount of 4.125% senior notes due 2050 (the “2050 Senior Notes”), net of discount of $5.0 million. The 2030 Senior Notes are scheduled to mature on April 3, 2030 and the 2050 Senior Notes are scheduled to mature on April 3, 2050. Interest on the 2030 Senior Notes and the 2050 Senior Notes is payable in cash on April 3 and October 3 of each year. The Company incurred $13.6 million of debt issuance costs associated with the issuance of the 2030 Senior Notes and the 2050 Senior Notes.

During the second quarter of 2021, the Company entered into interest rate swaps on a portion of the 2030 Senior Notes. These interest rate swaps are being accounted for as fair value hedges, with the derivative asset or liability offset by a corresponding adjustment to the carrying value of the 2030 Senior Notes. Such arrangements are not material to the Company’s condensed consolidated financial statements.

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 October 29, 2021.

The following table presents the Company’s liabilities required to be measured at fair value as of October 29, 2021, 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

October 29,

(In thousands)

(Level 1)

(Level 2)

(Level 3)

2021

Liabilities:

Long-term obligations (a)

$

4,384,540

$

160,001

$

$

4,544,541

Deferred compensation (b)

 

45,475

 

 

 

45,475

(a)Included in the condensed consolidated balance sheet at book value as long-term obligations of $4,127,426.
(b)Reflected at fair value in the condensed consolidated balance sheet as Accrued expenses and other current liabilities of $2,756 and noncurrent Other liabilities of $42,719.

10

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 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. In 2019, the Company recorded an accrual of $31.0 million for losses the Company believes are both probable and reasonably estimable relating to certified class actions and associated matters including the matters discussed below under Consumer/Product Litigation.

Except as described below and 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 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.

Consumer/Product Litigation

In December 2015 the Company was first notified of several lawsuits in which plaintiffs allege violation of state law, including state consumer protection laws, relating to the labeling, marketing and sale of certain Dollar General private-label motor oil. Each of these lawsuits, as well as additional, similar lawsuits filed after December 2015, was filed in, or removed to, various federal district courts of the United States (collectively “Motor Oil Lawsuits”).

On June 2, 2016, the Motor Oil Lawsuits were centralized in a matter styled In re Dollar General Corp. Motor Oil Litigation, Case MDL No. 2709, before the United States District Court for the Western District of Missouri (“Motor Oil MDL”). In their consolidated amended complaint, the plaintiffs in the Motor Oil MDL sought to certify two nationwide classes and multiple statewide sub-classes and for each putative class member some or all of the following relief: compensatory damages, injunctive relief, statutory damages, punitive damages and attorneys’ fees.

The parties reached an agreement, which was granted final approval by the court on June 22, 2021, to resolve the Motor Oil MDL for an amount that is immaterial to the Company’s consolidated financial statements as a whole.

The Company previously reached agreements with the Offices of the New Mexico Attorney General and the Louisiana Attorney General to resolve, for amounts immaterial to the Company’s consolidated financial statements as a whole, allegations that the Company’s labeling, marketing and sale of certain Dollar General private-label motor oil violated New Mexico and Louisiana law (the “New Mexico and Louisiana Motor Oil Matters”).

On September 1, 2017, the Mississippi Attorney General, who also is represented by the counsel for plaintiffs in the Motor Oil MDL, filed an action in the Chancery Court of the First Judicial District of Hinds County, Mississippi alleging that the Company’s labeling, marketing and sale of certain Dollar General private-label motor oil violated Mississippi law. The Company removed this matter to Mississippi federal court on October 5, 2017, and it was transferred to the Motor Oil MDL. On July 7, 2021, the matter was remanded to Mississippi federal court where it remains pending.

The Company is vigorously defending these matters and believes that the labeling, marketing and sale of its private-label motor oil comply with applicable federal and state requirements and are not misleading. The Company further believes that these matters are not appropriate for class or similar treatment. At this time, however, except as to the Motor Oil MDL and the New Mexico and Louisiana Motor Oil Matters, it is not possible to predict whether these matters ultimately will be permitted to proceed as a class or in a similar fashion or the size of any putative class or classes. Likewise, except as to Motor Oil MDL and the New Mexico and Louisiana Motor Oil Matters, no assurances can be given that the Company will be successful in its defense of these matters on the merits or otherwise. Based on its belief that a loss in these matters is both probable and reasonably estimable, as noted above, during 2019, the Company recorded an accrual for an amount that is immaterial to the Company’s consolidated financial statements as a whole.

11

8.

Segment reporting

The Company manages its business on the basis of one reportable operating segment. As of October 29, 2021, substantially all of the Company’s operations were located within the United States with the exception of certain product sourcing and other operations, which collectively are not material with regard to assets, results of operations or otherwise to the condensed 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

39 Weeks Ended

October 29,

October 30,

October 29,

October 30,

(in thousands)

    

2021

    

2020

    

2021

    

2020

 

Classes of similar products:

Consumables

$

6,704,750

$

6,385,315

$

19,695,835

$

19,585,114

Seasonal

 

913,872

 

906,623

 

3,054,565

 

2,986,146

Home products

 

551,109

 

517,147

 

1,683,614

 

1,601,450

Apparel

 

348,108

 

390,540

 

1,134,987

 

1,159,605

Net sales

$

8,517,839

$

8,199,625

$

25,569,001

$

25,332,315

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 December 1, 2021, the Board authorized a $2.0 billion increase to the existing common stock repurchase program, bringing the cumulative total to $14.0 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 any applicable debt agreements and other factors. Repurchases under the program may be funded from available cash or borrowings, including under the Revolving Facility and issuance of CP Notes discussed in further detail in Note 5.

Pursuant to its common stock repurchase program, during the 39-week periods ended October 29, 2021 and October 30, 2020, the Company repurchased in the open market approximately 9.9 million shares of its common stock at a total cost of $2.1 billion and approximately 8.0 million shares of its common stock at a total cost of $1.6 billion, respectively.

The Company paid a cash dividend of $0.42 per share during each of the first three quarters of 2021. On November 30, 2021, the Board declared a quarterly cash dividend of $0.42 per share, which is payable on or before January 18, 2022 to shareholders of record on January 4, 2022. 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 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 October 29, 2021, the related condensed consolidated statements of income, comprehensive income, and shareholders’ equity for the thirteen and thirty-nine week periods ended October 29, 2021 and October 30, 2020, the condensed consolidated statement of cash flows for the thirty-nine week periods ended October 29, 2021 and October 30, 2020, 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 January 29, 2021, 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 19, 2021, 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 January 29, 2021, 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

December 2, 2021

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 January 29, 2021. It also should be read in conjunction with the disclosure under “Cautionary Disclosure Regarding Forward-Looking Statements” in this report.

Impact of COVID-19

The COVID-19 (coronavirus) pandemic has resulted in widespread and continuing impacts on the global economy and continues to affect our business, as well as our customers, suppliers, and other business partners. In addition, the pandemic and its impact have contributed, and may continue to contribute, to financial results that differ significantly from our historical results and seasonal variations that are significantly different from our historical patterns.

In early March 2020, we began seeing heightened demand from customers, particularly for consumable products such as paper, food and cleaning products, which continued throughout 2020, although with some variability as to the volume and product mix. Beginning in April 2020, demand also significantly increased for many non-consumable products, including home, seasonal and apparel, resulting in an overall significant mix shift into non-consumable categories, which continued through the first quarter of 2021, although this trend began reversing in the second quarter of 2021 and continued to do so through the third quarter of 2021. We believe these buying patterns were influenced in part by the economic stimulus payments and enhanced unemployment benefits. Throughout 2020, we acquired new customers and are pleased with the retention rates of these customers. Finally, general trends in customer behavior toward trip consolidation and purchases of larger average basket amounts, which began in 2020 as customers shopped our stores less frequently than in 2019, have continued in 2021.

Heightened customer demand and the shifts in customer behavior significantly benefited our results of operations for fiscal 2020 and each of the first three quarters of 2021. We anticipate a less favorable overall net impact of the pandemic and its effects to operating income and net income for fiscal 2021 versus fiscal 2020 primarily due to the moderating positive impact to our net sales and the impacts that the phase out of various economic stabilization efforts, such as economic stimulus payments and enhanced unemployment benefits, may have on our customers.

We expect to continue to be affected, although the extent and duration is unknown, by the COVID-19 pandemic and its effects on the economy in a variety of ways, including changing consumer demand (whether higher or lower) in certain product categories; supply chain constraints, delays and interruptions (including product shortages and vendor allocation issues); increased distribution and transportation costs; increased payroll expenses; and increased costs in an effort to maintain safe work and shopping environments. Our operating environment during COVID-19 remains very fluid, and developments in this environment, including additional government economic stabilization efforts or actions, the failure to take such efforts or actions, or the federal vaccination and testing mandate, may materially impact our business, results of operations and financial condition. As a result, the quarterly cadence of our results of operations may continue to vary from historical patterns for an extended period of time.

Due to the significant uncertainty surrounding the COVID-19 pandemic and its effects, including its duration; the duration and intensity of new variants; the availability, adoption rates and effectiveness of vaccines; the extent and duration of any government response efforts, programs, benefits or mandates; impact on employment trends, consumer behavior and the supply chain, there may be consequences that we do not anticipate at this time or that develop in unexpected ways. We will continue to monitor the evolving situation, and we will continue to take actions as necessary to serve our employees, customers, communities and shareholders.

14

Executive Overview

We are the largest discount retailer in the United States by number of stores, with 17,915 stores located in 46 states as of October 29, 2021, with the greatest concentration of stores in the southern, southwestern, midwestern and eastern United States. 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 the unemployment and underemployment rates, wage growth, changes in U.S. and global trade policy, and changes to certain government assistance programs, such as the Supplemental Nutrition Assistance Program (“SNAP”), unemployment benefits, economic stimulus payments, and the child tax credit. In 2020 and the first three quarters of 2021, our customers experienced impacts from many of these factors, as detailed above under “Impact of COVID-19”. We are monitoring the potential impact of reductions in SNAP benefits and unemployment benefit programs, as well as changes in the payments of the child tax credit. We have not seen a material impact from these changes through the third quarter of 2021, but any or all of these changes may impact our customers during the fourth quarter of 2021 and into 2022. Additionally, our customers are impacted by increases in those expenses that generally comprise a large portion of their household budgets, such as rent, healthcare, and fuel prices; as well as cost inflation in frequently purchased household products. Finally, significant unseasonable or unusual weather patterns can impact customer shopping behaviors.

We remain committed to our long-term operating priorities as we consistently strive to improve our performance while retaining our customer-centric focus. These priorities 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 effective category management, inventory shrink reduction initiatives, private brands penetration, distribution and transportation efficiencies, global sourcing, and pricing and markdown optimization. Several of our strategic and other sales-driving initiatives are also designed to capture growth opportunities and are discussed in more detail below.

Historically, our 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. Prior to 2020, our sales mix had continued to shift toward consumables, and, within consumables, toward lower margin departments such as perishables. This trend did not occur in 2020 or the first quarter of 2021 (as discussed above under “Impact of COVID-19”), although we did begin to see some reversion toward the prior mix trends beginning in the second quarter of 2021 and continuing through the third quarter of 2021. We continue to expect some sales mix challenges to persist and expect the mix trend reversion toward consumables will continue. Several of our initiatives, including certain of those discussed below, are intended to address these mix challenges; however, there can be no assurances that these efforts will be successful.

We continue to make progress on and invest in certain strategic initiatives that we believe will help drive profitable sales growth, both with new and existing customers, and capture long-term growth opportunities. Such opportunities include leveraging existing and developing new digital tools and technology to provide our customers with additional shopping access points and even greater convenience. This technology includes our Dollar General app, which contains a variety of tools to enhance the in-store shopping experience. Additionally, during 2021 we launched a

15

partnership with a third party delivery service, which is now available in more than 10,000 stores. We also 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, our non-consumables initiative, which offers a new, differentiated and limited assortment that will change throughout the year, is contributing to improved overall sales and gross margin performance in stores where it has been deployed. We have significantly expanded the number of stores with the full or “lite” version of our non-consumables initiative offering in 2021, and we plan to complete our initial rollout of the non-consumables initiative in the vast majority of our Dollar General stores by the end of fiscal 2022.

Additionally, in the third quarter of 2020, we introduced pOpshelf, a unique retail concept that incorporates certain of the lessons learned from NCI in a differentiated format that is 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 third quarter of 2021, we operated 30 standalone pOpshelf locations and 14 pOpshelf store-within-a-store concepts within existing Dollar General Market stores. Our goal is to operate up to 50 pOpshelf locations, as well as up to 25 pOpshelf store-within-a-store concepts by the end of fiscal 2021. We believe this concept represents a significant growth opportunity, as we anticipate opening approximately 100 additional standalone locations in fiscal year 2022, and are targeting approximately 1,000 stores by the end of fiscal year 2025.

In the second quarter of 2021, we completed our rollout of the “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. DG Fresh contributed to our strong sales performance in the first three quarters of 2021, driven by higher in-stock levels and the introduction of new products in select stores. In addition, DG Fresh benefitted gross profit in the first three quarters of 2021 through improved initial markups on inventory purchases, which were partially offset by increased distribution and transportation costs. DG Fresh now serves essentially all stores across the chain, whether in whole or in part, and we expect the overall net benefit to our financial results to continue throughout 2021. Moving forward, we plan to focus on further optimization of the distribution footprint and product assortment within DG Fresh to further drive profitable sales growth.

To support our other operating priorities, we remain focused on capturing growth opportunities. In the first three quarters of 2021, we opened 798 new stores, remodeled 1,506 stores, and relocated 82 stores. For 2021, we plan to open approximately 1,050 new stores (including any pOpshelf stores), remodel approximately 1,750 stores, and relocate approximately 100 stores, for a total of 2,900 real estate projects. In 2022, we plan to open approximately 1,110 new stores (including any pOpshelf and international stores), remodel approximately 1,750 stores, and relocate approximately 120 stores, for a total of 2,980 real estate projects. In the second half of 2022, we expect to open up to ten stores in Mexico, representing our first store locations outside the United States.

We continue to innovate within our channel and are able to utilize the most productive of our various Dollar General store formats based on the specific market opportunity. We recently introduced two new larger format stores (one at approximately 8,500 square feet and the other at approximately 9,500 square feet), which allows us to further expand our offering and our ability to serve our customers. We expect the 8,500 square foot box, along with our existing Dollar General Plus format of a similar size, to become our base prototypes for the majority of new stores moving forward, replacing our traditional 7,300 square foot store format and higher-cooler count Dollar General Traditional Plus format. The innovation in store formats is expected to allow us to capture additional growth opportunities within our existing markets. Additionally, the larger formats allow for expanded high-capacity-cooler counts; an extended queue line; and a broader product assortment, including NCI, 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 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. Additionally, we have a smaller format store (less than 6,000 square feet), which is expected to allow us to capture growth opportunities in urban areas.

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.

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We also have launched “Fast Track”, an initiative aimed at further enhancing our convenience proposition and in-stock position as well as increasing labor efficiencies within our stores. The first phase of Fast Track involved sorting process optimization within our distribution centers, as well as increased shelf-ready packaging, to allow for greater store-level stocking efficiencies, followed by the second-phase pilot of a self-checkout option in a limited number of stores. We previously completed the sorting process optimization at all of our non-refrigerated distribution centers. Additionally, we expect to continue to add self-checkout capabilities in additional stores. These and the other strategic initiatives discussed above will require us to incur upfront expenses for which there may not be an immediate return in terms of sales or enhanced profitability.

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. We have experienced incremental payroll, distribution and transportation costs related to the COVID-19 pandemic and its associated impacts. We continue to experience significantly higher supply chain costs and, in some instances, shipping delays, as a result of shipping capacity shortages, port congestion and labor shortages. We expect continued inflationary pressures due to higher input costs will continue to affect us as well as our vendors, including higher commodity, transportation and other costs, all of which may result in continued pressure to our operating results, and their duration is unknown. While we expect these challenges to persist, certain of our initiatives and plans are intended to help offset these challenges; however, they are somewhat dependent on the scale and timing of the increases, among other factors. There can be no assurance that our mitigation efforts will be successful.

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 repurchased shares of our common stock and paid quarterly cash dividends in the first three quarters of 2021. We expect to continue our share repurchase activity, and to pay quarterly cash dividends for the foreseeable future, subject to Board discretion and approval.

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 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. Net 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.

A continued focus on our four operating priorities as discussed above contributed to our overall operating and financial performance in the 2021 and 2020 periods, which were enhanced by increased consumer demand, as discussed above under “Impact of COVID-19”.

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Highlights of our 2021 third quarter results of operations, compared to the 2020 third quarter, and our financial condition at October 29, 2021 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 $8.52 billion due to new stores, while sales in same-stores decreased 0.6% primarily reflecting a decrease in customer traffic. Average sales per square foot for all stores over the 52-week period ended October 29, 2021 was $263.

Gross profit, as a percentage of net sales, was 30.8% in the 2021 period and 31.3% in the 2020 period, a decrease of 57 basis points, primarily reflecting an increased LIFO provision and increased transportation costs.

SG&A expense, as a percentage of net sales, was 22.9% in the 2021 period compared to 21.9% in the 2020 period, an increase of 105 basis points, due in part to higher retail labor and store occupancy costs as a percentage of net sales.

Operating profit decreased 13.9% to $665.6 million in the 2021 period compared to $773.1 million in the 2020 period.

Interest expense decreased by $1.1 million in the 2021 period.

The effective income tax rate for the 2021 period was 22.2% compared to a rate of 21.6% for the 2020 period primarily due to a reduced benefit associated with share-based compensation in the 2021 period.

Net income was $487.0 million, or $2.08 per diluted share, in the 2021 period compared to net income of $574.3 million, or $2.31 per diluted share, in the 2020 period.

Highlights of the year-to-date period of 2021 include:

Cash generated from operating activities was $2.23 billion for the 2021 period, a decrease of $1.16 billion, or 34.2%, from the comparable 2020 period.

Total cash dividends of $295.4 million, or $1.26 per share, were paid during the 2021 period, compared to $268.6 million, or $1.08 per share, in the comparable 2020 period.

Inventory turnover was 4.5 times on a rolling four-quarter basis. On a per store basis, inventories at October 29, 2021 decreased by 0.1% compared to the balances at October 30, 2020.

The above discussion is a summary only. Readers should refer to the detailed discussion of our results of operations below in the current year periods as compared with the prior year periods as well as our financial condition at October 29, 2021.

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 2021 and 2020, which represent the 52-week fiscal years ending or ended January 28, 2022 and January 29, 2021, respectively. References to the third quarter accounting periods for 2021 and 2020 contained herein refer to the 13-week accounting periods ended October 29, 2021 and October 30, 2020, respectively.

Seasonality. The nature of our business is somewhat seasonal. Primarily because of sales of Christmas-related merchandise, operating profit in our fourth quarter (November, December and January) has historically been higher than operating profit 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. Consumer behavior driven by the COVID-19 pandemic and the U.S. government’s response thereto, including economic stimulus legislation, has

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resulted in a departure from seasonal norms we have experienced in recent years and may continue to disrupt the historical quarterly cadence of our results of operations for an unknown period of time.

The following table contains results of operations data for the third 13-week periods and the 39-week periods of 2021 and 2020, and the dollar and percentage variances among those periods:

13 Weeks Ended

2021 vs. 2020

39 Weeks Ended

2021 vs. 2020

 

(amounts in millions, except

    

October 29,

    

October 30,

    

Amount

    

%

    

October 29,

    

October 30,

    

Amount

    

%

 

per share amounts)

2021

2020

Change

Change

2021

2020

Change

Change

 

Net sales by category:

Consumables

$

6,704.8