Dollar Tree's Q1 Earnings & Sales Beat Estimates, Comps Rise 5.4%

Dollar Tree, Inc. DLTR posted solid first-quarter fiscal 2025 results, with both earnings and sales beating the Zacks Consensus Estimate and growing year over year. Quarterly results benefited from the sturdy execution of its strategic initiatives.

Dollar Tree’s adjusted earnings per share (EPS) from continuing operations jumped 2.4% year over year to $1.26 and beat the Zacks Consensus Estimate of $1.19. (See the Zacks Earnings Calendar to stay ahead of market-making news.)

Shares of Dollar Tree fell above 2% in the pre-market session after its first-quarter fiscal 2025 announcement. A weak second-quarter adjusted EPS view might have hurt investors’ sentiments. However, shares of this Zacks Rank #3 (Hold) company have gained 37.9% in the past three months compared with the industry’s 2.7% growth.

DLTR’s Quarterly Performance: Key Metrics & Insights

Net sales from continuing operations, excluding Family Dollar, improved 11.3% year over year to $4.64 billion and surpassed the Zacks Consensus Estimate of $4.54 billion. Same-store sales (comps) grew 5.4% year over year. The company’s comps benefited from a 2.5% rise in traffic and a 2.8% increase in the average ticket.

Dollar Tree, Inc. Price, Consensus and EPS Surprise

Dollar Tree, Inc. price-consensus-eps-surprise-chart | Dollar Tree, Inc. Quote

The gross profit jumped 11.7% year over year to $1.6 billion, with a 20-basis-point (bps) gross margin expansion to 35.6%, primarily backed by reduced freight, improved mark-on and occupancy costs owing to leveraged sales, somewhat offset by higher distribution, shrink and markdown costs. We estimated a year-over-year increase of 6.2% in gross profit and a 60-bps contraction in the gross margin.

Selling, general and administrative (SG&A) costs were 27.3% of sales, up 100 bps from the year-earlier quarter. The rise was driven by elevated depreciation expenses from store investments, increased store payroll from higher wages, general liability claims and utilities costs. The increase was partially compensated by lower stock compensation, temporary labor with respect to the multi-price store conversions and sales leverage. On an adjusted basis, the SG&A expense rate increased 130 bps to 24.2%.

Adjusted operating income inched up 1.4% year over year to $387.8 million. The operating margin contracted 80 bps to 8.4%. We estimated a year-over-year decline of 13.9% in adjusted operating profit and a 110-bps contraction in adjusted operating margin.

DLTR’s Financial Health

Dollar Tree ended the fiscal first quarter with cash and cash equivalents of $1 billion, no borrowings under its revolvers and no commercial paper outstanding. As of May 3, 2025, net merchandise inventories were $2.70 billion, up 9.8% year over year. It had a net long-term debt, excluding the current portion, of $2.43 billion and shareholders’ equity of $3.90 billion as of May 3, 2025.

In first-quarter fiscal 2025, the company repurchased 5.9 million shares for $436.8 million. It had bought an additional 780 thousand shares for $67.5 million, subsequent to the end of the quarter. Dollar Tree had nearly $519.7 million under its $2.5-billion repurchase authorization, as of May 3, 2025.

On May 15, 2025, the company leveraged a combination of cash and its commercial paper program to redeem its $1.0 billion 4% Senior Notes.  As of June 2, 2025, it had $550 million of commercial paper notes outstanding.

On March 25, 2025, DLTR entered into a definitive agreement to offload its Family Dollar business to Brigade and Macellum for $1.007 billion, subject to adjustments for working capital and net indebtedness. The transaction, expected to close in the fiscal second quarter, is contingent upon customary closing conditions, with the U.S. antitrust approval, which has subsequently been granted. 

Dollar Tree classified Family Dollar as held for sale, reporting its results as discontinued operations in its financial statements. Net proceeds are likely to total roughly $800 million. Management estimates the economic impact of tax benefits from losses on the sale to be about $350 million.

Dollar Tree’s Store Update

In first-quarter fiscal 2025, DLTR opened 148 Dollar Tree stores and converted nearly 500 stores to the 3.0 multi-price format. At the end of first-quarter fiscal 2025, the company operated 16,607 stores in 48 states and five Canadian provinces.

Q1 & FY25 Expectations for DLTR

Dollar Tree reiterated its fiscal 2025 sales guidance on a continuing operations basis, which includes the Dollar Tree segment, corporate, support and other functions. The company’s outlook assumes that the level of tariffs in place as of June 4, 2025, is in effect for the rest of the fiscal year. It is likely to mitigate the majority of the incremental margin pressures from increased tariffs and other input costs. It revised the adjusted EPS view.

The company still projects net sales from continuing operations of $18.5-$19.1 billion, supported by comps growth of 3-5%. Adjusted EPS from continuing operations is projected to be $5.15-$5.65, including the year-to-date share repurchase impacts. Additional share repurchases are not reflected in the revised outlook. It had earlier envisioned the metric to be $5.00-$5.50.

The EPS view reflects SG&A costs related to the shared services provided to the Family Dollar business. Such costs will be made for the entirety of fiscal 2025. However, earnings will be hurt by 30-35 cents per share due to shared service costs tied to the Family Dollar sale, mostly concentrated in the first two quarters of fiscal 2025. While these costs will be incurred throughout 2025, the company will only receive reimbursement in the second half under a Transition Services Agreement (TSA), anticipated to begin upon the sale closing in the fiscal second quarter.

For the fiscal second quarter, Dollar Tree anticipates comparable net sales growth toward the higher end of its full-year outlook of 3-5%.

For the rest of fiscal 2025, management expects mitigating the earnings impact of the cost pressures, with increased tariffs. It does anticipate witnessing certain earnings volatility based on the timing of several inputs and outputs to its financial results over the near term. DLTR envisions second-quarter adjusted EPS from continuing operations to decline as much as 45-50% year over year before accelerating again in the third and fourth quarters to achieve the fiscal 2025 earnings outlook.

Key Picks

We have highlighted three better-ranked stocks, namely Urban Outfitters URBN, Canada Goose GOOS and Allbirds, Inc. BIRD.

Urban Outfitters, a fashion lifestyle specialty retailer, currently sports a Zacks Rank Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. 

The consensus estimate for Urban Outfitters’ current financial-year sales indicates growth of 8% from the year-ago figure. URBN delivered an average earnings surprise of 29% in the trailing four quarters.

Canada Goose, a designer and retailer of premium outerwear, currently carries a Zacks Rank #2 (Buy). GOOS delivered an average earnings surprise of 71.3% in the trailing four quarters.

The consensus estimate for Canada Goose’s current financial-year sales indicates a drop of 4.9% from the year-ago figure.

Allbirds, a lifestyle brand, currently has a Zacks Rank of 2. The company delivered a trailing four-quarter earnings surprise of 21.3%, on average.

The Zacks Consensus Estimate for BIRD’s current financial-year EPS indicates growth of 16.1% from the year-ago figure. 

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This article originally published on Zacks Investment Research (zacks.com).

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