Dollar Tree (DLTR) saw its shares surge approximately 12% in pre-market trading on Thursday after the discount retailer raised its full-year adjusted profit forecast and reported first-quarter results that surpassed analyst expectations. The improved outlook and strong quarterly performance provided a much-needed boost for the stock, which had faced significant pressure earlier this year.
First-Quarter Results Exceed Expectations
For the quarter ended May 2, Dollar Tree reported net sales of $5.0 billion, a 7.2% increase year-over-year. Comparable store net sales rose 3.5%, while adjusted diluted earnings per share (EPS) came in at $1.74, marking a 38.1% jump compared to the same period last year. These figures comfortably beat Wall Street estimates, which had projected $4.96 billion in sales and $1.54 in adjusted EPS, according to data from LSEG.
Sales Growth Driven by Higher Transaction Values
The sales growth was primarily fueled by a 4.5% increase in the average ticket size, as shoppers added more items per visit. However, customer traffic declined by 1.0%, indicating that the revenue gains were not driven by an influx of new shoppers. This mixed trend raises ongoing questions about store traffic dynamics, even as the top line strengthens. CEO Mike Creedon emphasized the company's role as a "preferred destination for value, convenience, and discovery," attributing margin improvements to product mix adjustments, cost controls, enhanced customer engagement, and store upgrades.
Margin Expansion and Cost Management
Gross profit margin expanded by 120 basis points (1.2 percentage points), benefiting from lower freight costs and reduced inventory shrinkage, which helped offset the impact of higher tariffs and increased markdowns. The company's ability to manage costs while navigating a challenging macroeconomic environment was a key highlight for investors.
Fiscal 2026 Outlook Raised
Dollar Tree raised its fiscal 2026 adjusted diluted EPS guidance to a range of $6.70 to $7.10, up from the previous forecast of $6.50 to $6.90. The company maintained its full-year net sales outlook at $20.5 billion to $20.7 billion. For the current quarter, management guided for adjusted EPS between $1.00 and $1.15, with net sales expected in the range of $4.8 billion to $4.9 billion.
Strategic Partnership and Industry Impact
In a separate development, Dollar Tree announced a partnership with DoorDash, enabling the delivery platform's users to shop from over 9,000 Dollar Tree stores across 48 states, offering more than 10,000 items via the app. Mike Goldblatt, an executive at DoorDash, noted that consumers are seeking easier ways to purchase everyday necessities at affordable prices. This move is expected to expand Dollar Tree's reach and convenience for customers.
The positive sentiment spilled over to the broader discount retail sector. Dollar General (DG) shares also gained 4.5% in pre-market trading, reflecting a favorable read-across. Both stocks had been down more than 20% year-to-date prior to Thursday's rally.
Analyst Caution and Remaining Risks
Despite the upbeat results, analysts remain cautious about potential headwinds. Piper Sandler reduced its price target on Dollar Tree to $101 from $116, maintaining a Neutral rating, and expressed concerns that comparable-store traffic could remain negative at least through the second quarter. The company's full-year outlook does not include tariff refunds, which amounted to approximately $110 million through May 26, adding an element of uncertainty to future earnings. The sustainability of the pre-market gains will likely depend on how the company navigates tariff costs and manages store traffic trends in the coming quarters.
