Dollar Tree reported a sharp increase in second-quarter earnings, though its stock fell after management provided a cautious outlook for the current quarter.
The discount retailer posted adjusted earnings per share of $2.70 for Q2, compared with a consensus estimate of $1.11, representing a 143% upside surprise. Excluding a $383 million tariff refund, underlying adjusted EPS was $1.39, beating expectations by about 23%. Revenue rose 7% year-over-year to $4.90 billion, while comparable store sales grew 3.7%, exceeding the company’s guidance range of 2.5% to 3.5%.
Gross margin expanded by 850 basis points to 42.9%, with roughly 680 basis points attributed to the tariff refund. Operating margin increased by 890 basis points to 14.1%. Free cash flow totaled $675 million in the quarter, and the company repurchased 5.6 million shares for $605 million, reducing its share count by about 8% over the past 12 months.
The tariff refund contributed $1.31 per share to the quarter, including $368.7 million in cost-of-sales credits and $14 million in interest income. Customer traffic rose 0.4%, the first positive reading since Q2 2025, while average transaction size increased 3.3%. The retailer now reaches 102 million households, having added 6.5 million net new households in Q4 2025.
Despite the strong quarter, Dollar Tree’s Q3 guidance fell short of analyst expectations. Management projected EPS of $0.80 to $0.95, with a midpoint of $0.88, well below the $1.39 consensus. The shortfall reflects reinvestment of tariff savings into pricing competitiveness, estimated to reduce EPS by about $0.50, alongside a 40th-anniversary $1 price point promotion.
For the full year, Dollar Tree raised its EPS guidance to $7.70 to $8.05, up from the prior range of $6.70 to $7.10. The midpoint of $7.88 includes an estimated $0.60 benefit from tariffs, implying a base range of $7.10 to $7.45 excluding refunds. The company also noted that multi-price point items now account for 17% of total sales, up 400 basis points year-over-year, while 3.0-format stores—featuring price points up to $5—now cover about 630 locations.
Analysts have set price targets for Dollar Tree between $135 and $145, with Jefferies at $135, Truist at $138, Freedom at $142, and Guggenheim and UBS at $145.
Key catalysts ahead include Q3 earnings, expected in December 2026, and the completion of the 3.0-format store rollout by the end of the fiscal year. The company also continues to execute a $2.5 billion share repurchase program.
