Dollar Tree Inc. shares fell 3.99% to $126.90 on Thursday after the discount retailer posted a sharp earnings beat for the second quarter but issued cautious third-quarter guidance that undershot analyst estimates.
The company reported Q2 earnings per share of $2.70, more than doubling the $1.11 consensus and marking a 143% year-over-year increase. Revenue rose 7% to $4.90 billion, while comparable sales grew 3.7%, beating the high end of management’s guidance range of 2.5% to 3.5%. Gross margin expanded by 850 basis points to 42.9%, driven largely by $383 million in IEEPA tariff refunds, which contributed $1.31 per share to the quarter.
Underlying adjusted EPS, excluding tariff refunds, totaled $1.39, exceeding the consensus by roughly 23%. Operating margin climbed 890 basis points to 14.1%, supported by shrink reduction, lower tariff rates, and occupancy leverage. Free cash flow reached $675 million, while the company repurchased 5.6 million shares for $605 million, reducing its share count by about 8% over the past 12 months.
Despite the strong quarter, Dollar Tree’s Q3 EPS guidance of $0.80 to $0.95 fell well short of the $1.39 consensus. Management cited reinvestment of tariff refunds into pricing competitiveness and a 40th-anniversary $1 price point promotion as headwinds, with an estimated $0.50 impact. For the full fiscal year 2026, adjusted EPS guidance was raised to $7.70 to $8.05 from $6.70 to $7.10, including an estimated $0.60 tariff benefit.
Sales drivers included a 0.4% increase in foot traffic—the first positive reading in five quarters—alongside a 3.3% rise in average transaction size. Consumables led category growth at 5.8%, while discretionary items rose 1.6%, adjusted for a $15 million helium shortage affecting party supplies. Multi-price point items, part of the retailer’s 3.0 store format rollout, now account for 17% of total sales, up 400 basis points year-over-year. The company has converted approximately 630 locations to the new format, with plans to complete the transition by year-end.
Dollar Tree’s household reach expanded to 102 million, including 6.5 million net new households added in Q4 2025. Store standards improved, with locations below internal benchmarks declining from 50% to roughly 33% since October 2025. Inventory levels fell 9% year-over-year.
Analyst price targets cluster between $135 and $145, implying 6% to 14% upside from current levels. The company retains a $2.5 billion share repurchase authorization, with further buybacks expected to support ongoing share count reduction.
