Dollar Tree Inc. (DLTR) shares took a hit Thursday, even though the company's second-quarter numbers looked pretty good on the surface. The discount retailer reported adjusted earnings of $2.70 per share, but that figure includes a hefty $1.31 boost from tariff refunds. Strip that out, and underlying earnings were $1.39 per share, still comfortably ahead of the $1.14 analysts were expecting.
Sales also came in strong, rising 7% year over year to $4.89 billion, edging past the $4.86 billion consensus.
Earnings Snapshot
Comparable-store sales climbed 3.7%, with average ticket up 3.3% and traffic up 0.4%. Gross margin expanded by a whopping 850 basis points to 42.9%, though tariff refunds accounted for 680 basis points of that gain. Lower tariff rates, better shrink trends, and improved occupancy leverage also helped.
Adjusted operating margin widened by 890 basis points, including a 650-basis-point benefit from those refunds.
During the quarter, Dollar Tree returned $605 million to shareholders through buybacks. As of Aug. 1, it had $2.5 billion left under its repurchase authorization. Operating cash flow came in at $922 million, with free cash flow at $675 million.
The company also opened 75 new stores and converted or added about 710 locations to its multiprice format. It ended the quarter with roughly 6,600 multiprice locations and 9,436 stores across the U.S. and Canada.
Outlook
But here's the rub: fuel prices. On the earnings call, CFO Stuart Glendinning said elevated fuel costs are driving a "very, very meaningful" increase in freight surcharges. That pressure isn't going away anytime soon, and it's a key reason why the company expects fourth-quarter gross margin to decline.
For fiscal 2026, Dollar Tree raised its adjusted earnings guidance to $7.70 to $8.05 per share, up from $6.70 to $7.10. That forecast includes an estimated 60-cent benefit from tariff refunds and beats the $7.04 consensus. The company kept its annual sales outlook at $20.5 billion to $20.7 billion, roughly in line with the $20.65 billion estimate.
But the third-quarter guidance is where things get dicey. Dollar Tree expects adjusted earnings of just 80 cents to 95 cents per share, which includes a 50-cent hit from reinvesting tariff refunds. That's way below the $1.40 analysts were looking for. Sales are projected at $5 billion to $5.1 billion, compared with the $5.04 billion estimate.
The company also expects comparable-store sales to grow 3% to 4% in both the third quarter and the full year.
DLTR Price Action: Shares were down 2.41% at $129.00 at the time of publication Thursday.
