DG 10-K & 10-Q changes, risk factors and insider trading

Investment in our Company involves risks. You should carefully consider the risks described below andtogether thewith all other information included or incorporated in this report and other filings that we make from time to time with the SEC, including but not limited to our consolidated financial statements and accompanying notes.notes and the information included under the headings “Business” included in Part I, Item 1, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II, Item 7. Any of the following risks could materially and adversely affect our business, financial condition, results of operations or liquidity. TheseHowever, the risks that we face are not thelimited to those described below and those set forth in our SEC filings. References to past events are provided by way of example only risksand weare face.not intended to be a complete listing or a representation as to whether such factors have occurred in the past or their likelihood of occurring in the future. Our business, financial condition, results of operations or liquidity could also be adversely affected by additional factors that apply to all companies generally or by risks not currently known to us or that we currently view to be immaterial. We can provide no assurance and make no representation that our risk mitigation efforts, although we believe they are reasonable, will be successful.

Many of our customers have fixed or low incomes and limited discretionary spending dollars. Any factor that could adversely affect their disposable income could decrease our customers’ confidence and spending or cause them to shift their spending to our lower margin product choices, which could result in materially decreased sales and/or profitability. Factors that could reduce, and in many cases have reduced, our customers’ disposable income include but are not limited to high unemployment or underemployment levels or decline in real wages; inflation; pandemics; higher fuel,fuel energy,and energy costs (including those related to the conflict in the Middle East); healthcare, housing and product costs; higher interest rates, consumer debt levels, and tax rates; lack of available credit; tax law changes that negatively affect credits and refunds; and decreases in, or elimination of, government assistance programs or subsidies such as unemployment and food/nutrition assistance programs,programs (for example, changes to the work requirement minimum standards for qualification enacted in 2025, and beginning in January 2026, certain states’ exclusion of historically covered product categories), student loan repayment forgivenessforgiveness, health insurance subsidies, and economic stimulus payments.

Many of the economic factors listed above, as well as commodity rates; transportation, lease and insurance costs; wage rates (including the possibility of increased federal and further increased state and/or local minimum wage rates); foreign exchange rate fluctuations; measures that create barriers to or increase the costs of international trade (includingincluding, increasedif we are not able to mitigate them, sustained higher import duties or tariffs,tariffs someon ofboth whichthe haveproducts beenthat announcedwe sell and arethose expectedthat towe beginuse in 2025our business); changes in applicable laws and regulations (including tax laws related to the corporate tax rate and the expiration of the Work Opportunity Tax Credit (“WOTC”)); and other economic factors, also could impair our ability to successfully execute our strategies and initiatives, as well as increase our cost of goods sold and selling, general and administrative expenses (including real estate and building costs), and may have other adverse consequences that we are unable to fully anticipate or control, all of which may materially decrease our sales or profitability.

While accelerating levels of inflation in the United States have moderated insince 2023 and 2024,2023, inflation remains elevated in certain areas, including food. If food inflation (and in particular, “food at homehome,” which moderately accelerated in 2025) inflationrapidly accelerates again, we may not be able to adjust prices sufficiently to offset the effect without negatively impacting customer demand or our overall gross margin. Additionally, to the extent that these inflationary pressures result in a recessionary environment, we may experience material adverse effects on our business, results of operations and cash flows. For more information, see the “Executive Overview” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in Part II, Item 7 of this report.

The success of our merchandising initiatives, particularly those related to non-consumable products (including pOpshelf) and efforts to increase sales of higher margin products within the consumables category, further depends in part upon our ability to accurately predict the products that our customers will demand and to accurately identify and timely respond to evolving trends in consumer preferences and demographic mixes in our markets. If we are unable to select and timely obtain products that are attractive to customers and at costs that allow us to sell them at an acceptable profit, or to effectively market such products, it could result in materially decreased sales and profitability. DespiteWhile thesewe initiatives,saw slight improvement in our sales mix continuedin 2025 as compared to shiftthe fromprior non-consumablesyear, towardour consumablessales inmix 2024,remains heavily weighted towards consumables, and there is no guarantee that these initiatives will continue to improve our consumables sales as a percentage of total sales is currently at historical highs.mix. Additionally, factors negatively affecting our customers’ disposable income and consumer sentiment, such as the economic factors discussed above, can have (and we believe recently have had) a larger negative impact on non-consumables sales results than consumables sales results and on our pOpshelf concept.

The retail business is highly competitive with respect to price, customers, store location, merchandise quality, product assortment and presentation, service offerings, product sourcing and supply chain capacity, in-stock consistency, customer service, ease of shopping experience (including but not limited to various modes of shopping, including online alternatives and delivery), promotional activity, employees, and market share. We compete with discount stores andand, manyto varying degrees, other retailers, including mass merchandise, convenience, variety, drug, grocery, warehouse club, grocery, drug, convenience, variety, online retailers, and certain specialty stores. To maintain our competitive position, we may be required to lower prices, either temporarily or permanently, and may have limited ability to increase prices in response to increased costs, resulting in lower margins and reduced profitability. Certain of our competitors have greater financial, distribution, marketing and other resources, and may be able to secure better arrangements with suppliers, than we. Furthermore, if our competitors or third parties incorporate artificial intelligence into their businesses more quickly or more successfully than us, it could impair our ability to compete effectively and adversely affect our results of operations, or if our use of artificial intelligence is inaccurate or ineffective, our competitive position could be adversely affected.

Competition is intense, and is expected to continue to be so, with certain competitors reducing their store locations while others enter or increase their presence in our geographic and product markets (including through the expansion of availability of delivery services) and expand availability of mobile, web-based and other digital technologies to facilitate a more convenient and competitive online and in-store shopping experience. We currently do not offer traditional online shopping to a significant degree and have seen a greater willingness of our customers to adopt online shopping.shopping generally. In addition, if our competitors or others were to enter our industry sector in a significant way, including through alliances or other business combinations, it could significantly alter the competitive dynamics of the retail marketplace and result in competitors with greatly improved competitive positions, which could materially affect our financial performance. Our ability to effectively compete will depend substantially upon our continued ability to develop and execute compelling and cost-effective strategies and initiatives. If we fail to anticipate or respond effectively to competitive pressures, industry changes and customer preferences and shopping habits, it could materially affect our results of operations and financial condition.

Delays in or failure to complete a significant portion of our real estate projects, or failure to meet our financial expectations for these projects, could materially and adversely affect our growth and our profitability. Our ability to timely and profitably open, relocate and remodel stores and expand into additional market areas is a key component of our planned future growth and may depend in part on: the availability of suitable store locations and capital funding; the absence of entitlement process, permitting or occupancy delays, including zoning restrictions and moratoria on small box discount retail development such as those passed by certain local governments in areas where we operate or seek to operate; supply chain volatility resulting in delivery delays, and in some cases, lack of availability of store equipment, building materials, and store merchandise for resale; the ability to negotiate acceptable lease and development terms (for example, interest rates, real estate development requirements and cost of building materials and labor), to cost-effectively hire and train qualified new personnel, especially store managers, and to identify and accurately assess sufficient customer demand; and general economic conditions. While we continued to experience certain of these factors at historically heightened levels in 2024,2025, to date, they have not materially impaired our ability to complete our planned real estate projects or growth, and thus, have not had a material adverse effect on our financial performance. However, if the levels which we have experienced escalate or remain elevated for an extended period of time, we expect that they could have a material adverse effect on our ability to complete our future planned real estate projects or growth, and in turn, a material adverse effect on our financial performance. Despite inflation moderation and some recent declines in interest rates, both inflation and interest rates remain at elevated levels, which significantly increases our new store opening costs and occupancy costs, pressuring new store returns and influencing our new store growth plans.

We also may not anticipate or successfully address all of the challenges imposed by the expansion of our operations (including our pOpshelf and Mi Super Dollar General store concepts), including into new countries or domestic markets, states or urban or suburban areas where we have limited or no meaningful experience or brand recognition. Those areas may have different regulatory environments, competitive and market conditions, consumer tastes and discretionary spending patterns than our existing markets, as well as higher cost of entry and operating costs. These factors and other factors not currently contemplated may cause our new stores to be less profitable than stores in our existing markets, which could slow future growth in these areas or cause one or more of our concepts to be unsuccessful. In addition, many new stores will be located in areas where we have existing stores, which inadvertently may temporarily or permanently divert a larger than anticipated number of customers and sales from our existing stores, thereby adversely affecting our overall financial performance. WeIn recentlythe announcedfirst ourquarter plansof to2025, closewe closed 45 pOpshelf stores and convertconverted an additional six to Dollar General stores in the first quarter of 2025,stores, as well as our incurring ofincurred significant impairment charges, the majority of which relate to the pOpshelf stores. Although we are takingtook focused action in 2025 to improve the performance of pOpshelf stores,stores and will continue to do so in 2026, there can be no assurances that our efforts will be successful.

We experience significant inventory shrinkage and damages. Although some level of inventory shrinkage and damages is an unavoidable cost of doing business, higher rates of inventory shrinkage and damages or increased security measures or other costs to combat inventory theft could adversely affect our results of operations and financial condition. During 2024, our inventory shrink and damages levels remained significantly elevated and materially impacted our results. In addition, sustained high rates of inventory shrink at certain stores have historically contributed, and inventory shrink and/or damages may continue to contribute, to the closure of certain stores and the impairment of long-term assets.assets in the future. There can be no assurance that we will be successful in our efforts to contain or reduce inventory shrinkage and damages.

Because we accept debit and credit cards for payment, we are subject to industry data protection standards and protocols, such as the Payment Card Industry Data Security Standards, issued by the Payment Card Industry Security Standards Council. Nonetheless, we or our applicable payment processing partner(s), may be vulnerable to, and unable to detect and appropriately respond to, cardholder data security breaches and data loss, including successful attacks on applications, systems, or networks. Further, we pay interchange and other processing fees related to our acceptance of debit and credit card payments, and these fee amounts could continue to increase over time, as a result of customers shifting their payments from cash to credit/debit card and/or our fee rates rising, thereby raising our operating costs.

We depend on a variety of information technology systems, including systems owned and managed by third-party vendors, for the efficient functioning of our business, including, without limitation, transaction processing and the management of our employees, facilities, logistics, inventories, stores and customer-facing digital applications and operations. Such systems are subject to damage or interruption from power surges and outages, facility damage, physical theft, computer and telecommunications failures, inadequate or ineffective redundancy, malicious code (including malware, ransomware, or similar), successful attacks (e.g., account compromise; phishing; denial of service; and application, network or system vulnerability exploitation), software upgrade failures or code defects, natural disasters and human error. Due to the political tensions involving China, the conflict between Russia and Ukraine and the conflict in the Middle East, there is an increased likelihood that escalation of tensions could result in cyberattacks that could either directly or indirectly impact our operations. A system breach or failure, design defects, damage to, or interruption to these systems may require a significant investment to repair or replace, disrupt our operations and affect our ability to meet business and reporting requirements, result in the loss or corruption of critical data, and harm our reputation, all of which could materially and adversely affect our business or results of operations. Additionally, costs and complexities of securing our systems against failure or attack continue to rise.increase.

Our technology initiatives may not deliver desired results or may do so on a delayed schedule. We rely heavily on our information technology staff to fulfill our technology initiatives while continuing to provide maintenance on existing systems, as well as on third parties to maintain and periodically upgrade many of these systems so that they can continue to support our business. Further, we license the software programs supporting many of our systems from independent software developers. The inability or failure of these vendors, developers or us to continue to maintain and upgrade these systems and software programs or efficiently implement and integrate new systems could disrupt or reduce the efficiency of our operations or retain vulnerability exploitation risk if we were unable to convert to alternate systems in an efficient and timely manner and could expose us to greater risk of a successful attack. There are also risks associated with our continued integration of artificial intelligence and machine learning within our technology systems.systems (for example, if the types of information that applications with embedded artificial intelligence assist in producing are or are alleged to be deficient, inaccurate, or biased, our business, financial condition, and results of operations may be adversely affected). In addition, costs and delays for any reason associated with the implementation of new or upgraded systems and technology, including our current migration of applications to the cloud, modernization of legacy systems (including our Finance and Human Resources enterprise resource planning system and our inventory replenishment system) and implementation of our new point of sale system, or with maintenance or adequate support of existing systems also could disrupt or reduce the efficiency of our operations, fail to operate as designed, result in the potential loss or corruption of data or information or lost sales, cause business interruptions, inhibit our ability to innovate, and affect our ability to meet business and reporting requirements and adversely affect our profitability.

While we are working to diversify our sources of imported goods to include Southeast Asia, India, South America and Mexico, a substantial amount of our imported merchandise comes from China, and thus, a change in the Chinese leadership, the effects of pandemic outbreaks, economic and market conditions, internal economic stimulus actions, or currency or other policies, as well as trade and other relations between China and the United States and increases in costs of labor, could negatively impact our merchandise costs. In addition, the United States’ foreign trade policies, duties, tariffs and other impositions on imported goods, trade sanctions imposed on certain countries (particularly China) and entities, import limitations on certain types of goods or goods containing certain materials and other factors relating to foreign trade, including but not limited to port labor agreements, are beyond our control. DutiesIn increased on certain products imported from China and Southeast Asian countries in 2024, and2025, the current U.S. administration hasimposed imposedadditional tariffs andacross couldmany furtherof significantlyour increaseglobal tariffstrading onpartners, goods fromincluding China, Mexico,the CanadaEuropean Union, Canada, India, and othervarious countries.countries located in Southeast Asia. These and other factors affecting our suppliers and our access to productsproducts, if we are not able to offset them, could adversely affect our business and financial performance. If we increase our product imports from foreign vendors, the risks associated with these imports also will increase, and we may be exposed to additional or different risks as we increase imports of goods produced in countries other than China.

Our future growth and performance, positive customer experience and legal and regulatory compliance depends on our ability to attract, develop, retain and motivate qualified employees while operating in an industry that has historically been challenged by high rates of employee turnover. Our ability to meet our labor needs, while controlling our labor costs, is subject to many external factors, including competition for and availability of qualified personnel, unemployment levels, wage rates and salary levels (including the heightened possibility of increased federal and further increased state and/or local minimum wage rates/salary thresholds), health and other insurance costs, changes in employment and labor laws or other workplace regulations (including those relating to employee benefit programs such as health insurance and paid leave programs), employee expectations and productivity, employee activism, employee safety issues, and our reputation and relevance within the labor market. If we are unable to attract, develop and retain adequate numbers of qualified employees, our operations, customer service levels, legal and regulatory compliance, and support functions could suffer. In addition, to the extent a significant portion of our employee base unionizes, or attempts to unionize, our labor and other costs could increase, and it is possible thatif the federal government may adoptadopts or imposeimposes regulatory or other changes to existing law that could facilitate union organizing or otherwise restrict employer actions.actions, it could have an adverse effect on our business. Our ability to pass along labor and other related costs to our customers is constrained by our everyday low-price model, and we may not be able to offset such increased costs elsewhere in our business.

Natural disasters and unusual or extreme weather conditions (whether or not caused by climate change), pandemic outbreaks or other health crises, political or civil unrest, acts of war, violence or terrorism, and disruptive global political events could disrupt businessbusiness, affect consumer sentiment or shopping patterns, and result in lower sales and/or profitability and otherwise adversely affect our financial performance.

The occurrence of one or more natural disasters, such as hurricanes (such as those occurring in the third quarter of 2024),hurricanes, fires, floods, tornadoes and earthquakes, unusual or extreme weather conditions, pandemic outbreaks or other health crises, political or civil unrest, acts of war, violence or terrorism (including within our stores, distribution centers or other Company property), or disruptive global political events (for example, the political tensions involving China, the conflict between Russia and Ukraine and the conflict in the Middle East) or similar disruptions could adversely affect our business, financial performance and reputation. If any of these events result in the closure, or a limitation on operating hours, of one or more of our distribution centers, a significant number of stores, our sourcing offices, our corporate headquarters or data center or impact one or more of our key suppliers, our operations and financial performance could be materially and adversely affected through an inability or reduced ability to make deliveries, process payroll or provide other support functions to our stores and through lost sales. These events also could affect consumer sentiment or shopping patterns or prevent customers from reaching our stores, which could lead to lost sales and higher markdowns, or result in increases in fuel or other energy prices,prices (including those related to the conflict in the Middle East), fuel shortage(s), new store or distribution center opening delays, the temporary lack of an adequate work force in a market, the temporary or long-term disruption of product availability in our stores, the temporary or long-term inability to obtain or access technology needed to effectively run our business, disruption of our utility services or information systems, and damage to our reputation. These events may also increase the costs of insurance if they result in significant loss of property or other insurable damage or loss by us or in the market more generally. These events may also exacerbate the economic impacts to our business and our customers as discussed above.

Furthermore, if realized, the long-term impacts of global climate change present the possibility of both physical risks (such as extreme weather conditions or rising sea levels) and transition risks (such as regulatory changes), which may be widespread and are unpredictable. Over time, these changes, as well as regulatory efforts related thereto, could affect our operating costs (for example, the availability and cost of products, commodities and energy (including utilities)), which in turn may impact our ability to procure goods and services required for the operation of our businesses at the quantities and levels and at the costs we require. In addition, our operations and facilities may be located in areas impacted by the physical risks of climate change, and we face the risk of losses incurred as a result of physical damage to stores, distribution centers, or our corporate offices, as well as loss or spoilage of inventory, business interruption caused by such events, and increased construction, repairs and maintenance costs at impacted locations. We also use natural gas, diesel fuel, gasolinegasoline, electricity and electricityplastics in our operations, all of which may face increased regulation relating to climate change or other environmental concerns. Regulations limiting greenhouse gas emissions andemissions, energy inputs and plastics use may also increase in coming years, which may increase our costs associated with compliance, merchandise purchases and supply chain. These events and their impacts could otherwise disrupt and adversely affect our operationsoperations, potentially impact customer purchasing behaviors, and could adversely affect our financial performance.

We depend on our vendors to ensure that the products we buy from them comply with applicable product safety and labeling laws and regulations and to inform us of all applicable restrictions on the sale of such products. Nonetheless, product liability, personal injuryinjury, consumer protection or other claims may be asserted against us relating to alleged product contamination, adulteration, tampering, expiration, mislabeling, recall, prohibited substances and other safety or labeling issues.

While not the case more recently (namely, the fourth quarters of fiscal years 2023 and 2024), ourOur most profitable sales mix generally occurs in the fourth quarter primarily because of sales of Christmas-related merchandise. In anticipation of this holiday, we purchase substantial amounts of seasonal inventory, and if sales fall below seasonal norms or our expectations, it could result in unanticipated markdowns. Adverse events, such as deteriorating or challenging economic conditions, high unemployment rates, high gas or energy prices, transportation disruptions, or unusual or unanticipated adverse weather could result in lower-than-planned sales during the Christmas selling season, which in turn could reduce our profitability and otherwise adversely affect our financial performance and operating results.

We rely on the positive cash flow we generate from our operating activities and our access to the credit and capital markets to fund our operations, growth strategy, and return of cash to our shareholders through dividends and share repurchases. Changes in the credit and capital markets, including market disruptions, limited liquidity and interest rate increases, may increase the cost of financing or restrict our access to these potential sources of future liquidity. Our continued access to liquidity sources on favorable terms depends on multiple factors, including our operating performance and credit ratings. In 2024,2025, Standard & Poor’s and Moody’s changed our outlook from “StableNegative” to “Negative.Stable,” and Moody’s changed our rating from Baa2 to Baa3 and our outlook from “Negative” to “Stable.”

Our current increased debt leverage levels have reduced our available capital, and these levels, combined with our desire to maintain our current investment grade credit rating, could reduce our flexibility in planning for or reacting to changes in our industry and market conditions, increase our vulnerability in the event of a downturn in our business operations, and/or negatively impact our ability to pursue certain operational and strategic opportunities. In addition, our credit agreement requires us to maintain a minimum fixed charge coverage ratio and maximum leverage ratio, as well as a number of customary affirmative and negative covenants. We recently amended our credit agreement, increasing the maximum leverage ratio covenant and decreasing the minimum fixed charge ratio covenant until January 30, 2026, or earlier at our option upon achieving certain financial covenant milestones. While we were in compliance with these covenants as of January 31,30, 2025,2026, our future ability to comply with these covenants may be affected by events beyond our control. If we breach any of these covenants and do not obtain a waiver from the lenders, then subject to applicable cure period, our ability to borrow under our credit agreement could be impacted.

The market price of our common stock may fluctuate significantly in response to a number of factors. These factors, some of which are beyond our control and some of which have occurred in the past few years, include the perceived prospects and actual results of operations of our business, as well as any failure to achieve projected results; changes in estimates of our results of operations by analysts, investors or us, as well as our guidance not aligning with market expectations; trading activity by our large shareholders; trading activity by sophisticated algorithms; performance results of our competitors; actions, news or announcements by us, our competitors, and other third parties; litigation and judicial decisions; legislative or regulatory actions or changes; and changes in general economic or market conditions. In addition, the stock market in general has from time to time experienced extreme price and volume fluctuations, and these market fluctuations could reduce the market price of our common stock for reasons unrelated to our operating performance.

We routinely incur significant costs in complying with numerous and frequently changing laws and regulations. The complexity of this regulatory environment and related compliance costs continue to increase due to additional legal and regulatory requirements, our expanding operations, and increased regulatory scrutiny and enforcement efforts. New or revised laws, regulations, orders, policies and related interpretations and enforcement practices, particularly those dealing with the sale of products, including without limitation, product and food safety, marketing, labeling or pricing; information security and privacy; labor and employment; employee wages, salary levels and benefits; health and safety; real property; public accommodations; imports and customs; transportation; intellectual property; taxes; bribery and anti-corruption; climate change; and environmental compliance, may significantly increase our expenses or require extensive system and operating changes that could materially increase our cost of doing business. Violations of applicable laws and regulations or untimely or incomplete execution of a required product recall can result in significant penalties (including loss of licenses, eligibility to accept certain government benefits such as SNAP or significant fines), class action or other litigation, governmental investigation or action and reputational damage. Further, states may enact conflicting laws, mandating changes in operations that negatively impact our ability to execute uniformly and achieve economies of scale across states. Additionally, changes in tax laws and policies (including those related to the federal, state or foreign corporate tax rate), the interpretation of existing laws and policies, the expiration of previously available tax credits, or our failure to sustain our reporting positions on examination could adversely affect our overall effective tax rate. The WOTC expired at the end of the 2025 calendar year, and, if not renewed, the expiration is expected to have a significant negative impact on our future earnings per share. Furthermore, significant and/or rapid increases to federal and further increases to state and/or local minimum wage rates/salary levels could adversely affect our operating results if we are not able to otherwise offset these increased labor costs elsewhere in our business or if changes to our business operations are required. Moreover, the adoption of new environmental laws and regulations in connection with climate change and the transition to a low carbon economy, including any federal or state laws enacted to regulate greenhouse gas emissions or require public disclosures related thereto (including the currently stayed SEC rules requiring certain disclosures relating to climate change),thereto, could significantly increase our operating or merchandise costs or reduce the demand for our products. These laws and regulations may include, but are not limited to, requirements relating to hazardous waste materials, recycling and recycled/recyclable product content, single-use plastics, extended producer responsibility, use of refrigerants, carbon pricing or carbon taxes, product energy efficiency standards and product labeling. If carbon pricing requirements or carbon taxes are adopted, there is a significant risk that the cost of merchandise from our suppliers will increase and adversely affect our business and results of operations.

There is also continued uncertainty surrounding potential changes to the regulatory environment (including, but not limited to, personnel changes at regulatory agencies) in the United States. For example, potentialcontinued efforts to reform federal government processes and reduce expenditures, as well as pressures on and uncertainty surrounding the U.S. federal government’s budget and political changes in budgeting priorities could continue to adversely affect the funding for individual programs, including government programs, upon which our customers depend. ExecutiveChanges ordersrelated coveringto immigration, artificial intelligence, and workforce policies and practices, if implemented, may also impact us. PotentialAdditional potential regulatory changes related to tax, trade, and economic and monetary policy, among other potential changes, could adversely impact the global economy and our operating results.

Our business is subject to the risk of litigation or other legal proceedings by employees, consumers, suppliers, competitors, shareholders, unions, government officials and agencies and others through private actions, class actions, multi-district litigation, arbitrations, derivative actions, administrative proceedings, regulatory actions (including investigations) or other litigation. For example, we are involved in certain legal proceedings as discussed in Note 7 to the consolidated financial statements. The outcome of legal proceedings, particularly class action or multi-district litigation or mass arbitrations and regulatory actions, can be difficult to assess or quantify. Plaintiffs in these types of lawsuitslawsuits, as well as government officials and agencies, may seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss may remain unknown for lengthy periods. In addition, certain of these matters, if decided adversely to us or settled by us and not covered by insurance, may result in liability material to our financial statements as a whole or may negatively affect our operating results if changes to our business operations are required, and sometimes these developments are unanticipated. Legal proceedings in general, and class actions, derivative actions, mass arbitrations, multi-district litigation, and governmental investigations and actions in particular, can be expensive and disruptive, and adverse publicity could harm our reputation, regardless of the validity of the allegations. As a result, legal proceedings may adversely affect our business, results of operations and financial condition. See also Note 7 to the consolidated financial statements.

We are the largest discount retailer in the United States by number of stores, with 20,66220,959 stores located in 48 U.S. states and Mexico as of February 28,27, 2025,2026, with the greatest concentration of stores in the southern, southwestern, midwestern and eastern United States. Our first stores in Mexico opened in 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 often 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) infrom 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. The primary macroeconomic factors that affect our core customers include unemployment and underemployment rates, inflation, wage growth, changes in federal and state tax policies, interest rates, changes in U.S. and global trade policy,policy (including price increases resulting from tariffs), and changes in U.S. government policy and assistance programs (including cost of living adjustments and work requirements), such as SNAP, unemployment benefits, and economic stimulus programs. Finally, significant unseasonable or unusual weather patterns or extreme weather can impact customer shopping behaviors.

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. Our customers continue to feel constrained in the current macroeconomic environment and to experience elevated 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), which we expect will continue to pressure our customers’ spending overall and particularly in our non-consumables categories. This pressure contributed to a heavier promotional environment in the second half of 2024 compared to the prior year, and we expect a promotional environment in 2025 similar to that in 2024.overall.

We seek to drive profitable sales growth through initiatives aimed at increasing customer traffic and average transaction amount. 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 been the key drivers of more profitable sales growth and average transaction amount. Our sales mix hasremains continuedheavily toweighted shift towardtowards consumables, whichalthough currentlywe constitutessaw aslight historicallyimprovement high proportion ofin our sales mix.mix in 2025 compared to the prior year. Certain of our initiatives are intended to addressbetter thisoptimize our sales mix trend; however, there can be no assurances that these efforts will be successful.

As we work to provide everyday low prices and meet our customers’ affordability needs, we remain focused on enhancing our margins through inventory shrink and damage reduction initiatives, as well as pricing and markdown optimization, the DG Media Network (our platform that connects brand partners with our customers), effective category management and inventory reduction efforts, distribution and transportation efficiencies, private brands penetration and global sourcing.sourcing strategies. Several of our strategic and other sales-driving initiatives are also designed to capture growth opportunities and are discussed in more detail below.opportunities.

We continue to implement and invest in certain strategic initiatives thatintended we believe will helpto drive profitable sales growth with both new and existing customers and capture long-term growth opportunities. Such opportunitiesinitiatives include providing our customers with a variety of 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. We remain focused on enhancing both the in-store and digital shopping experience, while driving operational efficiency. OurThe partnershipdelivery withcomponent of our digital initiatives is becoming a third-partymeaningful contributor to our comparable store sales performance. Third-party delivery serviceservices isand myDG® Delivery are available in the majority of our stores, providing added convenience and incremental sales. Additionally, in September 2024, we partnered with the same third-party provider to fully execute a same-day home delivery offering through our DG app and website in a limited number of stores. We believe wethese can significantly expand this offering to additional stores in 2025. Furthermore, we believe thesedigital efforts will contribute to the continued to growth of our DG Media Network, our platform that connects brand partners with our customers.Network.

In 2025, we are expandingexpanded our efforts to improve the performance and profitability of our mature stores through the rollout of an incremental remodel program, Project Elevate. This partial-remodel initiative is designed to refresh and optimize the merchandising in our stores, and in turn, enhance the shopping experience for our customers, while also potentially mitigating future repairs and maintenance expense. Project Elevate remodels are incremental to our full-remodel program, Project Renovate.

We also remain focused on capturing growth opportunities. In 2024,2025, we opened a total of 725589 new stores, including five8 stores in Mexico, remodeled 1,6212,000 stores,stores through Project Renovate and 2,254 stores through Project Elevate, relocated 8547 stores and closed 290 stores. In 2025,2026, we plan to open approximately 575450 new stores (as well as upapproximately to 1510 stores in Mexico), fully remodel approximately 2,000 stores through Project Renovate, partiallyremodel remodelapproximately 2,250 stores through Project Elevate, and relocate approximately 4520 stores, for a total of 4,8854,730 real estate projects.

pOpshelfpOpshelf, is aour unique retail concept focused on categories such as seasonal and home décor, health and beauty, home cleaning supplies, and party and entertainment goods.goods, Inrepresents lightan ofadditional thepotential softergrowth discretionary sales environment, we previously converted certain pOpshelf stores to Dollar General stores, and do not believe opening new stores in 2025 is a prudent use of capital.opportunity. At the end of 2024,2025, we operated 231180 standalone pOpshelf stores. FollowingWe the completion of the pOpshelf store closures and conversions discussed above, we will operate 180 pOpshelf stores. In addition, we recorded a significant impairment expensecontinue to reflect the updated fair value of pOpshelf assets. We are takingtake focused actionactions in 2025designed to improve the performance of pOpshelf stores, and will continue to evaluate the brand and whether we are seeing the desired impact of these activities and optimization, although there can be no assurances that our efforts will be successful.

We expect store format innovation to allow us to capture additional growth opportunities as we continue to utilize the most productive of our various Dollar General store formats based on the specific market opportunity. In 20252025, we expectbegan utilizing store formats averaging approximately 8,500 square feet of selling space for the significant majority of thenew storesstores. toThese beformats predominantly in one of our 8,500 square foot formats. This format allowsallow 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 are always seekingseek ways to reduce or control costs that do not affect our customers’ shopping experiences. We plan to continue enhancing thisour position as a low-cost operator 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. From time to time, our strategic initiatives, including without limitation those discussed above, have required and may continue to 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,rates and occupancy costs and depreciation and amortization, have continued to increase in recent years, due primarily to market forces such as labor availability, increases in minimum wage rates, inflation and increases ininflation, property rents and interest rates. Significant or rapid increases to federal, state or local minimum wage rates or salary levels could significantly adversely affect our earnings if we are not able to otherwise offset these increased labor costs elsewhere in our business.

While the overall growth rate of inflation moderated over the second half of 2024, weWe believe ongoing inflationary pressures could continue to affect our operatingvendors resultsand customers and our vendorsoperating and customers. Moreover, increases in market interest rates have had a negative impact on our interest expense.results. Both inflation and higher interest rates have significantly increased new store opening costs and occupancy costs,costs andin recent years and, while we continue to have strong new store returns andremain plan to grow our store base significantly in 2025,strong, these increased costs have negatively impacted our projected new store returns and influenced our new store growth plans.

Our 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, as employees who are promoted from within our company generally have longer tenures and are greater contributors to improvements in our financial performance. We are taking actions designed to reducecontinue reducing our higher than targeted store manager turnover, including through budgeting and allocation of labor hours,hours and simplifying in-store activities, and reducing excess inventory.activities.

Same-store sales. 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. Average sales per square foot is calculated based on total sales for the preceding 12four monthsquarters as of the ending date of the reporting period divided by the average selling square footage duringas the period, includingof the end of the fiscalmost year,recent the beginning of the fiscal year, and the end of each of our three interim fiscalfive quarters.

Inventory turnover. Inventory turnover is calculated based on total cost of goods sold for the preceding four quarters as of the ending date of the reporting period divided by the average inventory balance as of the ending date of the reporting period, including the end of the fiscalmost year,recent the beginning of the fiscal year, and the end of each of our three interim fiscalfive quarters.

Accounting Periods. The following text contains references to years 2025, 2024, 2023, and 2022,2023, which represent fiscal years ended January 30, 2026, January 31, 2025, and February 2, 2024, and February 3, 2023, respectively. Our fiscal year ends on the Friday closest to January 31. Fiscal years 2025, 2024 and 2023 were 52-week accounting periods and fiscal year 2022 was a 53-week accounting period.periods.

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 achieved in each of the first three quarters of the fiscal year.year, However,although morethis recently,was not the case in 2024 and in particular fiscal years 2023 and 2024, this has not been the case.2023. 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.

Net Sales. The netNet sales increase in 20242025 wasincreased 5.2% primarily due to sales from new stores and an increase in same-store sales of 1.4%3.0% compared to 2023,2024 and sales from new stores, partially offset by the impact of store closures. The increase in same-store sales reflects a 1.1%1.6% increase in customer traffic and a 0.3%1.4% increase in average transaction amount. The increase in average transaction amount was driven byreflects higher average item retail prices and an increase inflat items per transaction. Same-store sales increased in the consumablesconsumables, category and declined in theseasonal, home products, seasonalproducts and apparel categories. In 2024,2025, our 19,63320,268 same-stores accounted for sales of $38.8$41.2 billion.

The netNet sales increase in 20232024 wasincreased 5.0% primarily due to sales from new stores and an increase in same-store sales of 0.2%1.4% compared to 2022,2023, partially offset by the impact of store closures. Net sales for the 53rd week of fiscal 2022 were $678.1 million. The increase in same-store sales reflects ana 1.1% increase in customer traffic,traffic partially offset byand a decrease0.3% increase in the average transaction amount. The decreaseincrease in average transaction amount was driven by a decline in items per transaction, partially offset by higher average item retail prices.prices and an increase in items per transaction. Same-store sales increased in the consumables category,category and declined in the home products, seasonal and apparel categories. In 2023,2024, our 18,76319,633 same-stores accounted for sales of $36.9$38.8 billion.

Gross Profit. In 2024,2025, gross profit increased by 2.5%,9.0%, and as a percentage of net sales decreasedincreased by 70107 basis points to 29.6%30.7%, compared to 2023,2024, primarily driven by increasedlower markdowns,shrink, ahigher greaterinventory proportion of sales coming from the consumables categorymarkups and increasedlower inventory damages, partially offset by decreasedan transportationincreased costs.LIFO provision.

In 2023,2024, gross profit decreasedincreased by 0.9%,2.5%, and as a percentage of net sales decreased by 9470 basis points to 30.3%29.6%, compared to 2022,2023, primarily driven by increased shrink and inventory markdowns, lower inventory markups, a highergreater proportion of lowersales margincoming from the consumables sales,category and increased damages.inventory Partiallydamages, offsettingpartially theoffset factors which decreased our overall gross profit rate were a lower LIFO provision andby decreased transportation costs.

SG&A. SG&A as a percentage of net sales was 24.0%25.5% in 20232025 compared to 22.4%25.4% in 2022,2024, an increase of 15313 basis points. The primary expenses that were higher as a percentage of net sales in 20232025 were retailincentive labor, store occupancy costs, depreciationcompensation and amortization, repairs and maintenance, and other services purchased, including debt and credit card transaction fees, which were partially offset by alower decreaseimpairment charges primarily due to the store portfolio optimization review completed in incentive2024 compensation.as discussed in Note 12 to the consolidated financial statements.

Interest Expense, net. Interest expense, net decreased $43.8 million to $230.6 million in 2025 compared to 2024 primarily due to lower average debt balances from the repayment of long-term debt. Interest expense, net, decreased $52.5 million to $274.3 million in 2024 compared to 2023 due to higher average cash balances and the repayment of long-term debt. Interest expense, net increased $115.5 million to $326.8 million in 2023 compared to 2022, primarily due to higher outstanding borrowings and higher interest rates. See the detailed discussion under “Liquidity and Capital Resources” regarding the financing of various long-term obligations.

Income Taxes. The effective income tax rate for 20242025 was 21.8%23.0% compared to a rate of 21.6%21.8% for 20232024 which represents a net increase of 0.21.2 percentage points. The effective tax rate was higher in 20242025 primarily due to a higher state effective tax raterate, enactment of Pillar Two minimum tax, and a decreased benefit from stock-basedjobs-based compensationtax partiallycredits offsetdue byto the effect of certain rate-impacting items on lowerhigher earnings before taxes.taxes diluting the rate impact of the credits.

The effective income tax rate for 20232024 was 21.6%21.8% compared to a rate of 22.5%21.6% for 20222023 which represents a net decreaseincrease of 0.90.2 percentage points. The effective tax rate was lowerhigher in 20232024 primarily due to a higher state effective tax rate and a decreased benefit from stock-based compensation partially offset by the effect of certain rate-impacting items (such as federal tax credits) on lower earnings before taxes and a lower state effective rate resulting from increased recognition of state tax credits.taxes.

In 2025, 2024 and 2023, we experienced moderate increases in product costs due to lowermodest ratesinflationary of inflation.pressure. In addition, we continued to experience elevated but relatively stable costs of building materials and certain of our other capital costs. In 2022, we experienced higher rates of inflation affecting product costs, the costs of building materials and certain of our other capital costs.

During the past three years, we have generated an aggregate of approximately $7.4$9.0 billion in cash flows from operating activities and incurred approximately $4.6$4.3 billion in capital expenditures. During that period, we expanded the number of stores we operate by 2,464,1,789, representing store growth of approximately 14%,9%, and we remodeled or relocated 5,7648,143 stores, or approximately 32%43% of the stores we operated as of the beginning of the three-year period. In 2025,2026, we intend to pursue accelerated growth in remodels, including ProjectProjects Elevate,Elevate and Renovate, with slower growth for new stores and fewer relocations.

On September 3, 2024, we entered into an amended and restated credit agreement which provides for a $2.375 billion unsecured five-year revolving credit facility (the “Revolving Facility”) and allows for a subfacility for letters of credit of up to $100 million, of which $70 million is currently committed and $30 million is currently uncommitted. The Revolving Facility also includes a subfacility with an available borrowing capacity of up to $50 million for short-term borrowings referred to as swingline loans. The Revolving Facility is scheduled to mature on September 3, 2029.

The credit agreement governing the Revolving Facility contains a number of customary affirmative and negative covenants that, among other things, restrict, subject to certain exceptions, our (and 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 agreement governing 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 January 31, 2025, we were in compliance with all such covenants. On March 11, 2025, we amended the credit agreement governing the Revolving Facility to increase the maximum leverage ratio and decrease the minimum fixed charge ratio untilthrough January 30, 2026, or earlier at our option upon achieving certain financial covenant milestones (“Covenant Relief Period”). During the Covenant Relief Period, we arewere restricted from repurchasing shares of our common stock and the ability to incur certain additional liens and subsidiary debt iswas reduced. The credit agreement governing the Revolving Facility also contains customary events of default. As of January 30, 2026, we were in compliance with all such covenants.

We may issue 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 our other unsecured and unsubordinated indebtedness. We intend 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 January 31,30, 2025,2026, our consolidated balance sheet reflected no outstanding unsecured CP Notes. CP Notes totaling $195.0 million were held by a wholly-ownedwholly owned subsidiary and therefore are not reflected in the consolidated balance sheets.

We may redeem some or all of the Senior Notes at any time at redemption prices set forth in the Senior Indenture. Upon the occurrence of a change of control triggering event, which is defined in the Senior Indenture, each holder of our Senior Notes has the right to require us to repurchase some or all of such holder’s Senior Notes at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date. We have provided notice to the trustees of our $500.0 million senior unsecured notes scheduled to mature on November 1, 2025, that we intend to redeem the entire principal amount of such notes on April 29, 2025. We expect to use cash on hand for the redemption.

Our common stock repurchase program had a total remaining authorization of approximately $1.38 billion at January 31,30, 2025.2026. The authorization 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 repurchase authorization has no expiration date, and future repurchases will depend on a variety of factors, including price, market conditions, compliance with the covenants and restrictions under our debt agreements, cash requirements, excess debt capacity, results of operations, financial condition and other factors. The repurchase program may be modified or terminated from time to time at the discretion of our Board of Directors. To preserve our investment grade credit rating and maintain financial flexibility,Although we didhave not repurchase anyrepurchased shares under this program insince 20242022, it remains an important part of our broader capital allocation strategy, and dowe notanticipate planresuming toshare repurchaserepurchases sharesat duringthe fiscalappropriate 2025.time. For more detail, see Note 11 to the consolidated financial statements.

In March 2025,2026, the Board of Directors declared a quarterly cash dividend of $0.59 per share which is payable on or before April 22,21, 20252026 to shareholders of record of our common stock on April 8,7, 2025.2026. We paid quarterly cash dividends of $0.59 per share in 2024.2025. Although theThe Board currently expects to continue regular quarterly cash dividends, although the declaration and amount of future cash dividends ultimately are subject to the Board’s sole discretion and will depend upon, among other factors, our results of operations, cash requirements, financial condition, contractual restrictions, excess debt capacity and other factors that our Board may deem relevant in its sole discretion.

Cash flows from operating activities. Cash flows from operating activities were $2.4$3.6 billion in 2023,2025, which represents a $407.2$638.4 million increase compared to 2022.2024. Net income increased to $1.5 billion in 2025 as compared to $1.1 billion in 2024. Changes in merchandiseincome inventoriestaxes resulted in a $299.1$199.2 million increase in 2025 compared to a $15.4 million decrease in our2024 workingprimarily capitaldue to the increase in 2023pre-tax earnings in 2025 and the timing of payments for income taxes. Changes in accrued expenses resulted in a $250.0 million increase in 2025 compared to thea decrease$91.8 ofmillion $1.7 billionincrease in 20222024, asdue describedprimarily to an increase in greateraccrued detailincentive below.compensation. Changes in accounts payable resulted in a $36.9$185.3 million increase in our working capital in 20232025 compared to a $194.7$302.9 million decreaseincrease in 2022,2024, due primarily to the timing of inventory receipts and related payments. Net income decreased to $1.7 billion in 2023 as compared to $2.4 billion in 2022. Changes in othermerchandise noncash lossesinventories resulted in a $89.0 million increase as compared to a $530.5$178.5 million increase in 2022our primarilyworking due to a lower LIFO provisioncapital in 2023. Changes in income taxes including a decrease in cash paid for income taxes in 20232025 compared to 2022 are primarily due to the decreaseincrease of $230.2 million in pre-tax2024 earningsas described in 2023.greater detail below.

On an ongoing basis, we closely monitor and manage our inventory balances, and they may fluctuate from period to period based on new store openings, the timing of purchases, and other factors. Merchandise inventories decreased by 6% in 2025, decreased by 4% in 2024 and increased by 3% in 2023 and 20% in 2022.2023. The decrease in the 20242025 period primarily reflects a decrease in the consumablesconsumables, seasonal and home products categories due to inventory reduction efforts and core SKU reductions. Offsetting the inventory decreasedecreases inwas consumablesan and home products were increasesincrease in the seasonal and apparel categoriescategory primarily due to an increase in overall store count.count and improvements to inventory in-stock. Percent and dollar changes in our four inventory categories for the past three years were as follows:

Capital expenditures during 20252026 are projected to be in the range of $1.3$1.4 billion to $1.4$1.5 billion. We anticipate funding 20252026 capital requirements with a combination of some or all of the following: existing cash balances, cash flows from operations, availability under our Revolving Facility and/or the issuance of additional CP Notes. We plan to continue to invest in store growth and development with approximately 575450 new stores in the United States and upapproximately to 1510 new stores in Mexico and approximately 4,2954,270 remodels or relocations, including fully remodeling approximately 2,000 stores through Project Renovate, remodeling approximately 2,250 through Project Elevate, and relocating approximately 4520 stores. Capital expenditures in 20252026 are anticipated to support our store growth as well as our remodel and relocation initiatives, including capital outlays for leasehold improvements, fixtures and equipment; the construction of new stores; costs to support and enhance our supply chain initiatives for existing distribution center facilities and replacement of certain transportation related assets; technology initiatives; as well as routine and ongoing capital requirements.

Cash flows from financing activities. During the 20242025 periodperiod, we had repayments of long-term obligations of $770.2$1.7 million.billion. We paid cash dividends of $519.0$519.5 million and did not repurchase shares of our common stock.

We are the largest discount retailer in the United States by number of stores, with 21,05521,148 stores located in 48 U.S. states and Mexico as of MayJuly 1,31, 2026, 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 often 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) from our convenient small-box locations.

Uncertainty remains regarding the potential impact of tariffs on consumer behavior and our business. Tariff rates on both direct imports and domestic purchases did not materially impact our financial results for the firstsecond quarter of 2026. The tariff environment remains dynamic, and the specific tariffs applicable to goods imported by us and our suppliers into the U.S. may continue to evolve. Tariff rate increases or expansions of tariff coverage affecting the products that we sell could have a significant impact on our business and on our customers’ budgets. We continue to monitor developments and will evaluate the impact of any tariff rate changes on our business and take action to mitigate such impact. There can be no assurance we will be successful in our efforts, or that pricing actions, including any future price increases, if they become necessary, will not adversely affect customer behavior. FollowingDuring the Februarysecond 20,quarter 2026of decision by the United States Supreme Court invalidating certain tariffs imposed under the International Emergency Economic Powers Act,2026, we submittedbegan claimsreceiving with U.S. Customs and Border Protection seekingcash refunds forrelated suchto IEEPA tariffs that we had previously paid. TheWe exactreceived timingthe majority of the expected refunds during the quarter and amountreinvested a substantial portion of the refunds remainin subjectour tocustomer uncertainty.value proposition through targeted promotional activities and lower everyday prices.

We seek to drive profitable sales growth through initiatives aimed at increasing customer traffic and average transaction amount. Historically, sales in our consumables category, which tend to have lower gross margins, have been key drivers of net sales and customer traffic, while sales in our non-consumables categories, which tend to have higher gross margins, have been key drivers of more profitable sales growth and average transaction amount. Our sales mix remains heavily weighted towards consumables, although non-consumables have outpaced consumables in same-store sales growth for the last fivesix consecutive quarters. Certain of our initiatives are intended to better optimize our sales mix; however, there can be no assurances that these efforts will be successful.

Inventory shrink has significantly improved from elevated levels in recent years, and although damages remain elevated, we have made progress reducing damages forin the lastsecond fivequarter consecutiveof quarters.2026. We continue to implement actions designed to drive sustained improvement in both shrink and damages.

We also remain focused on capturing growth opportunities. In 2026, we plan to open approximately 450 new stores (as well as approximately 10 stores in Mexico), remodel approximately 2,000 stores through Project Renovate, remodel approximately 2,250 stores through Project Elevate, and relocate approximately 20 stores, for a total of 4,730 real estate projects. As part of this plan, in the firstsecond quarter of 2026 we opened a total of 195126 new stores, including 51 storesstore in Mexico, remodeled 659665 stores through Project Renovate and 711 stores through Project Elevate, relocated 65 stores and closed 33 stores.

Finally, pOpshelf, our unique retail concept focused on categories such as seasonal and home décor, health and beauty, home cleaning supplies, and party and entertainment goods, represents an additional potential growth opportunity. At the end of the firstsecond quarter of 2026, we operated 180179 standalone pOpshelf stores. We continue to take focused actions designed to improve the performance of pOpshelf stores, although there can be no assurances that our efforts will be successful.

We believe ongoing inflationary pressures could continue to affect our vendors and customers and our operating results. Both inflation and higher interest rates have significantly increased new store opening costs and occupancy costs in recent years and, while new store returns remain strong, these increased costs have negatively impacted our projected new store returns and influenced our new store growth plans. Furthermore, we incurred significantly higher fuel costs in the firstsecond quarter of 2026, and we expect this trend to continue for an uncertain duration.

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 2026 and 2025, which represent the 52-week fiscal years ending or ended January 29, 2027 and January 30, 2026, respectively. References to the firstsecond quarter accounting periods for 2026 and 2025 contained herein refer to the 13-week accounting periods ended MayJuly 1,31, 2026 and MayAugust 2,1, 2025, respectively.

The following tables contain results of operations data for the firstsecond 13-week periods and the 26-week periods of 2026 and 2025, and the dollar and percentage variances among those periods. Basis point amounts referred to below are equal to 0.01% as a percentage of net sales:

13 WEEKS ENDED MAYJULY 1,31, 2026 AND MAYAUGUST 2,1, 2025

Net Sales. For the 2026 period, net sales increased 3.4%5.2% to $10.79$11.29 billion. The net sales increase in the 2026 period was primarily due to sales from new stores and a same-store sales increase of 2.0%3.5% compared to the 2025 period,period and sales from new stores, partially offset by the impact of store closures. The increase in same-store sales reflects a 1.4%2.0% increase in customer traffic and a 0.5%1.5% increase in average transaction amount. The increase in average transaction amount was driven by higher average retail prices partially offset by a decrease in items per transaction. Same-store sales increased in the consumables, seasonal, apparelhome products, and home productsapparel categories. For the 2026 period, there were 20,33920,476 same-stores, which accounted for sales of $10.50$11.00 billion.

The amount of net sales represented by each of our product categories for the 13 weeks ended MayJuly 1,31, 2026, and MayAugust 2,1, 2025, as well as the percentage change between such periods, were as follows:

The percentage of net sales represented by each of our product categories for the 13 weeks ended MayJuly 1,31, 2026, and MayAugust 2,1, 2025, were as follows:

Gross Profit. For the 2026 period, gross profit increased by 5.5%,9.5%, and as a percentage of net sales increased by 65127 basis points to 31.6%,32.6%, compared to the 2025 period. The increase in the gross profit rate was driven primarily by highertariff inventoryrefunds, markups,a lower LIFO provision, and lower shrinkdistribution and damages,costs, partially offset by increased markdowns and increased transportation costs. We estimate the gross profit benefit of tariff refunds after related reinvestments, primarily through promotional and permanent markdowns, was approximately 81 basis points.

Selling, General & Administrative Expenses (“SG&A”). SG&A was 25.7%25.8% as a percentage of net sales in the 2026 period compared to 25.4%25.8% in the comparable 2025 period, an increase of 25 basis points.period. The primary expensesexpense that werewas a higher percentage of net sales in the current year period werewas depreciation and amortization, utilities, and property taxes, partially offset by rent, which was lower incentiveas compensation.a percentage of net sales.

Income Taxes. The effective income tax rate for the 2026 period was 24.9%24.2% compared to a rate of 23.4%23.5% for the 2025 period. The tax rate for the 2026 period was higher than the comparable 2025 period primarily due to expired federal tax credits, partially offset by decreaseda expensereduced fromstate stock-basedeffective compensation.tax rate.

We believe our cash flow from operations and existing cash balances, combined with availability under the unsecured revolving credit facility (the “Revolving Facility”), the unsecured commercial paper notes (the “CP Notes”) and access to the debt markets, will provide sufficient liquidity to fund our current obligations, projected working capital requirements, capital spending, and anticipated dividend payments and 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. All of our material borrowing arrangements are described in greater detail in Note 5 to the unaudited consolidated financial statements.

Our inventory balance represented approximately 44%42% of our total assets, exclusive of operating lease assets, goodwill and other intangible assets, as of MayJuly 1,31, 2026. Our ability to effectively manage our inventory balances can have a significant impact on our cash flows from operations during a given fiscal year, as discussed under “Changes in Cash Flows” below. Inventory purchases are often somewhat seasonal in nature, such as the purchase of warm-weather or Christmas-related merchandise. Efficient management of our inventory has been and continues to be an area of focus for us.

Our current credit ratings, as well as future rating agency actions, could (i) impact our ability to finance our operations on satisfactory terms; (ii) affect our financing costs; and (iii) affect our insurance premiums and collateral requirements necessary for our self-insured programs. There can be no assurance that we will maintain or improve our current credit ratings, particularly, if we are unable to lowermaintain or improve our leveragefinancial ratios to levels and within time frames deemed acceptable to the rating agencies. The credit ratings for our borrowings are as follows:

Unless otherwise noted, all references to the 2026 and 2025 periods in the discussion of cash flows from operating, investing and financing activities below refer to the 13-week26-week periods ended MayJuly 1,31, 2026 and MayAugust 2,1, 2025, respectively.

Cash flows from operating activities. Cash flows from operating activities were $0.7$1.5 billion in the 2026 period, which represents a $131.0$318.2 million decrease compared to the 2025 period. Net income increased $52.2$191.1 million in the 2026 period compared to the 2025 period. Changes in accounts payable resulted in a $293.5$275.5 million increase in the 2026 period compared to a $35.1$111.2 million decreaseincrease in the 2025 period, due primarily to the timing of inventory receipts and related payments. Changes in merchandise inventories resulted in a $308.1$249.0 million decrease in the 2026 period as compared to an increase of $124.8$44.7 million in the 2025 period as further discussed below. Changes in prepaid expenses and other current assets resulted in a $169.4 million decrease in the 2026 period as compared to a decrease of $25.7 million in the 2025 period, due primarily to an increase in vendor receivables. Changes in accrued expenses resulted in a $113.5$74.7 million decreaseincrease in the 2026 period compared to a $3.0$167.3 million decreaseincrease in the 2025 period, due primarily to the timing of accruals and payments for incentive compensation and interest.compensation. Changes in income taxes in the 2026 period compared to the 2025 period are primarily due to the amount of income tax accrued and timing of payments.

On a per store basis, inventories at MayJuly 1,31, 2026, decreased by 1.6%2.7% compared to the balances at MayAugust 2,1, 2025.

As of MayJuly 1,31, 2026, our common stock repurchase program had a total remaining authorization of approximately $1.38 billion. The authorization 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. Although to preserve our investment grade credit rating and maintain financial flexibility we have not repurchased shares under this program since 2022, it remains an important part of our broader capital allocation strategy, and we anticipate resuming share repurchases atin the appropriatesecond time.half of fiscal 2026. The repurchase authorization has no expiration date, and future repurchases will depend on a variety of factors, including price, market conditions, compliance with the covenants and restrictions under our debt agreements, cash requirements, excess debt capacity, results of operations, financial condition and other factors. The repurchase program may be modified or terminated from time to time at the discretion of our Board of Directors. For more about our share repurchase program, see Note 9 to the unaudited consolidated financial statements contained in Part I, Item 1 of this report.