Dollar Tree, Inc. (DLTR) Earnings

Management highlights

### Strategic Execution & Customer Environment - The consumer environment remains dynamic, with lower-income households facing pressure from higher fuel costs and broad macro uncertainty; customers are shopping closer to need, prioritizing affordability, convenience, and trip efficiency. - Dollar Tree's value-focused model is well positioned for this environment, and is benefiting from trade-in behavior as customers across all income cohorts become more value-focused; more than half of Dollar Tree's customer penetration now comes from higher-income households. - The multi-price assortment expansion strategy remains the core growth driver, enabling the company to add new higher-quality products previously unavailable at a single price point, while maintaining 85% of sales at $2 or below to preserve the brand's value anchor. - Seasonal holiday traffic is leveraged to drive greater engagement in everyday consumable categories, with early data showing expanded multi-price assortment supports incremental growth in everyday categories like toys and beverages. ### Operational Improvements - The company is seeing measurable improvement in shrink (retail inventory loss) year-over-year, driven by Investor Day initiatives including mandatory audits, targeted employee training, product protection measures, and tighter merchandising standards for high-risk categories. Improved store standards also support more consistent in-store performance. - Dollar Tree is scaling new data-driven, targeted marketing capabilities to better segment customers, deliver relevant messaging about the expanded assortment, and increase shopping frequency, with a focus on measuring marketing ROI to invest only in high-impact channels. - Traffic trends are performing in line with expectations following 2025 pricing actions, with 200 basis points of sequential improvement in two-year stacked traffic in Q1, reflecting normalization after pricing resets and positive customer response to the new assortment. - Store standard improvement initiatives (gold store standards) have delivered material progress: the share of stores below internal performance standards has fallen from 42% at Investor Day to less than a third currently, with improvement accelerating as fewer low-performing stores remain to be upgraded. - Share repurchase activity has reduced the total share count by approximately 8% over the past 12 months, returning $1.7 billion to shareholders.

Guidance

- Full year fiscal 2026 net sales guidance is set at $20.5 billion to $20.7 billion, with comparable store sales growth expected between 3% and 4%. Adjusted diluted earnings per share guidance is updated to $6.70 to $7.10, reflecting the strong Q1 performance, lower tariff rates through the first half of the year, higher expected fuel costs, and the reduced share count from recent repurchases. The guidance does not include any assumptions for future share repurchases or potential tariff refunds. - Second quarter 2026 net sales guidance is $4.8 billion to $4.9 billion, with comparable store sales growth expected between 2.5% and 3.5%. Adjusted diluted earnings per share guidance for Q2 is $1.00 to $1.15. - Management assumes current tariff rates will remain in place through July 2026, before reverting to higher pre-Supreme Court decision levels in the second half of the year, with no tariff refunds included in guidance. - Management expects traffic trends to continue improving throughout the year, with positive inflection expected in the second half as the company anniversaries 2025 pricing actions and ongoing operational initiatives scale. There are three potential upside sources to full year results: an earlier end to the Middle East conflict leading to lower fuel prices, extended lower tariff rates past July, and future tariff refunds that can be reinvested to drive further growth.

Segment performance

Dollar Tree reports overall net sales of $5 billion for Q1 fiscal 2026, a 7.2% increase year-over-year. Comparable store sales grew 3.5%, driven by a 4.5% increase in average ticket, while comparable traffic declined 1% (a 20 basis point sequential improvement from Q4 2025). By product category: consumables delivered 3.2% comparable sales growth, while discretionary categories delivered 3.9% comparable sales growth, with notable strength in toys and personal care. Approximately 85% of total sales come from items priced $2 and below. Gross margin expanded 120 basis points year-over-year to 9.5% adjusted operating margin, which grew 110 basis points year-over-year. Adjusted operating income increased 22% year-over-year, and adjusted diluted earnings per share grew 38% to $1.74. Inventory declined 9% year-over-year while sales grew 7.2%, improving inventory turnover and working capital efficiency. Corporate SG&A (inclusive of TSA income) declined 15% year-over-year, representing 2.4% of total revenue, a 70 basis point leverage improvement.

Risks & headwinds

- Ongoing macroeconomic uncertainty, including sustained higher fuel prices driven by the Middle East conflict, which increases customer financial pressure and raises the company's transportation and operating costs. - Uncertainty around future tariff policy, including the potential for higher tariffs in the second half of the year and uncertainty around the timing and size of potential tariff refunds. - Industry-wide pressure on general liability costs, which created a headwind for SG&A in Q1. - Remaining work to improve store standards across the fleet, with underperformance in store execution leading to higher shrink and lower customer engagement.

Analyst Q&A

• Q: What drove the Q1 earnings beat relative to prior guidance, and what impact did higher fuel have in the quarter? /

  A: The main drivers of the beat were better than expected shrink improvement, favorable freight costs, and stronger merchant margins, which combined to deliver 120 basis points of gross margin expansion. Tariff headwinds were fully offset by operating actions, and did not impact the quarter's outperformance. Higher fuel price volatility was negligible in Q1 due to the timing of the conflict-driven price increases, and full impacts will be seen in the second half of the year.

• Q: Why didn't the full Q1 upside flow through to the raised full year guidance, and when will traffic turn positive? /

  A: Management maintained a prudent outlook given ongoing macro uncertainties including extended higher fuel prices, tariff uncertainty, and broader consumer pressure. Fuel prices are now expected to stay elevated for the full year, and this higher cost is incorporated into guidance. Management remains confident traffic will continue to improve through the year, with positive inflection expected in the second half as it anniversaries 2025 pricing actions and store initiatives scale. Higher consumer pressure from fuel costs also increases customer focus on value, which benefits Dollar Tree's positioning.

• Q: What is the strategy behind recent center store food price increases, and how does Dollar Tree's value compare to competitors? /

  A: The recent price adjustments apply to less than 5% of the assortment, and were done to add popular branded items that could not be offered at lower price points, improving assortment relevance for customers. Merchants rigorously benchmark all products against competitors on a per-unit/per-ounce basis, and even with the adjustments, Dollar Tree maintains a positive relative value position. 85% of items remain priced below $2, which differentiates Dollar Tree from most competing retailers.

• Q: How does management balance prioritizing traffic growth versus maintaining profitability if traffic underperforms in the back half? /

  A: The strong Q1 performance provides a buffer to absorb higher costs and invest in traffic drivers without eating into the current guidance range. Existing initiatives including improved store standards, better shrink control, and low-cost high-return targeted marketing are already underway and expected to drive traffic improvement in the second half. Any future tariff refunds would also be reinvested in the business to support growth before impacting margin guidance.