CHESAPEAKE, Va. — Dollar Tree Inc. beat Wall Street's sales expectations in the first quarter, buoyed by rising customer traffic and continued momentum behind its multi-price store model. But the discount retailer tempered investor enthusiasm by projecting a decline in near-term earnings due to tariff-related cost pressures and transitional expenses tied to the pending sale of its Family Dollar business.
Net sales from continuing operations rose 11.3% to $4.6 billion in the quarter ended May 3, outpacing analyst forecasts. Same-store sales grew 5.4%, driven by a 2.5% increase in foot traffic and a 2.8% rise in average ticket.
Gross profit climbed 11.7% to $1.6 billion, with gross margin expanding 20 basis points to 35.6%, reflecting lower freight costs, improved product markups, and reduced occupancy costs due to stronger sales leverage.
“Our strong first quarter performance underscores the progress we’ve made against our strategic priorities,” said CEO Mike Creedon. “We see a meaningful opportunity to further elevate the value, convenience, and discovery that our customers depend on Dollar Tree to provide.”
Despite these gains, operating income rose just 0.6% to $384.1 million, as selling, general and administrative expenses jumped to 27.3% of revenue, up from 26.3% a year ago. The increase stemmed from higher store wages, depreciation tied to store investments, utilities, and liability claims.
Earnings from continuing operations came in at $1.47 per diluted share. On an adjusted basis, which excludes insurance gains and strategic review costs, EPS was $1.26. That beat consensus estimates but still reflected margin pressure.
The company also repurchased 5.9 million shares during the quarter for $436.8 million and had $519.7 million remaining under its $2.5 billion repurchase authorization as of May 3.
Tariff Pressure, Family Dollar Sale Create Near-Term Headwinds
Looking ahead, Dollar Tree reiterated its full-year sales outlook of $18.5 billion to $19.1 billion, with comparable store sales growth of 3% to 5%. However, it revised its adjusted earnings guidance to $5.15 to $5.65 per share, factoring in the impact of share repurchases completed to date.
The company flagged several near-term earnings headwinds. First, elevated tariffs are expected to pressure margins, though management expects to mitigate “most” of the impact over time. Second, ongoing costs associated with shared services for Family Dollar—which will continue throughout the fiscal year—are expected to reduce full-year earnings by $0.30 to $0.35 per share. Reimbursement for these services under a Transition Services Agreement (TSA) will only begin in the second half, following the expected close of the Family Dollar sale.
Dollar Tree expects a sharp decline in second-quarter earnings as these factors take hold. Adjusted EPS is projected to fall as much as 45% to 50% year-over-year before rebounding in the second half.
The company completed 148 new store openings in the quarter and converted roughly 500 locations to its 3.0 multi-price format. Free cash flow from continuing operations totaled $130 million.
Dollar Tree’s $1 billion sale of Family Dollar to Brigade Capital Management and Macellum Capital Management is expected to close in the current quarter, with estimated net proceeds of $800 million and an anticipated $350 million tax benefit from transaction-related losses.
Despite the near-term volatility, Creedon expressed optimism. “History has shown that we have the resilience to emerge stronger from periods of economic uncertainty,” he said.
