Dollar Tree Q1 Earnings: Solid Sales, But Margin Missteps Weigh on Sentiment

Dollar Tree’s first-quarter earnings for fiscal 2025 showcased a company making strategic progress amid a challenging retail landscape—but the results fell short of the high bar set by rival Dollar General just a day earlier. Despite exceeding consensus expectations on revenue and adjusted earnings, the discount retailer's shares fell nearly 4% in premarket trading as investors digested the lackluster margin expansion and tepid tone on near-term earnings. While Dollar Tree is in the process of shedding its underperforming Family Dollar unit, expectations were elevated, and the report failed to deliver the margin strength or guidance upgrade that bulls had hoped for.

Dollar Tree posted adjusted earnings per share of $1.26, ahead of the $1.21 consensus. Revenue rose 11.3% to $4.64 billion, beating estimates of $4.53 billion. Same-store sales increased 5.4%, driven by a 2.5% uptick in traffic and a 2.8% rise in average ticket. Gross profit climbed 11.7% to $1.6 billion, with gross margin expanding modestly by 20 basis points to 35.6%. However, adjusted operating income rose just 1.4% to $387.8 million, with the adjusted operating margin contracting by 80 basis points to 8.4%, reflecting ongoing cost pressures.

The divergence in market reaction relative to Dollar General's earnings is notable. While DG lifted its full-year guidance and demonstrated operating leverage on key costs, Dollar Tree’s report reflected margin headwinds from distribution, shrink, and markdowns—partially offsetting the benefits from improved freight costs and sales leverage. Compounding this, SG&A expenses as a percentage of revenue increased 100 basis points to 27.3%, weighed by higher depreciation, wage costs, and liability claims.

Dollar Tree reiterated its full-year fiscal 2025 sales outlook of $18.5 billion to $19.1 billion and raised its full-year adjusted EPS guidance to a range of $5.15 to $5.65 from the previous $5.00 to $5.50. This increase, however, was tied to completed share repurchases, not operational outperformance. Analysts had expected guidance to increase in line with stronger Q1 results, but the company maintained a cautious tone, highlighting near-term volatility driven by timing mismatches in cost and revenue flows.

One standout positive was comparable-store sales, which outpaced expectations and are now seen trending toward the high end of the 3% to 5% full-year range for the second quarter. This reflects a healthy consumer response to the company’s repositioning efforts, including store remodels and the rollout of its multi-price format across 500 locations. Dollar Tree also opened 148 new stores in the quarter, pushing further into growth territory even as it streamlines the business by divesting Family Dollar.

However, management warned that second-quarter adjusted EPS could decline 45% to 50% year-over-year due to transitional headwinds, including ongoing shared services costs tied to the Family Dollar business, which will not be reimbursed until the back half of the year. The company expects this dynamic alone to depress full-year earnings by $0.30 to $0.35 per share, though this impact will wane once the sale closes in Q2.

Despite these headwinds, the balance sheet remains in strong shape. Dollar Tree ended the quarter with $1.0 billion in cash, no outstanding borrowings under its credit revolvers, and $519.7 million remaining under its $2.5 billion share repurchase authorization. The company repurchased nearly $437 million in shares in Q1 and an additional $67.5 million early in Q2. It also retired $1 billion in senior notes via its commercial paper program, maintaining a flexible capital structure.

CEO Mike Creedon remains confident in the strategic direction, emphasizing customer loyalty and resilience in uncertain times. “We see a meaningful opportunity to further elevate the value, convenience, and discovery that our customers depend on Dollar Tree to provide,” he said.

In summary, while Dollar Tree's top-line performance and customer engagement appear strong, the bottom-line execution—particularly on margin control—fell short of what the market wanted to see following Dollar General’s bullish tone. The EPS guide lift, driven by buybacks rather than core margin upside, didn't carry the weight to offset these concerns. Investors are now left watching Q2 earnings closely, with hopes that the second half of the year delivers the reacceleration management is promising.