Dollar Tree Inc. 2027 Q2 Earnings Call

Good morning, everyone, and thank you for joining us today to discuss Dollar Tree's second quarter fiscal 2026 results. With me today are Dollar Tree's CEO, Mike Creedon, and CFO, Stewart Glendinning. Before we begin, I would like to remind everyone that some of the remarks that we will make today about the company's expectations, plans, and future prospects are considered forward-looking statements under the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties, which could cause actual results to differ materially from those contemplated by our forward-looking statements.

For information on the risks and uncertainties that could affect our actual results, please see the Risk Factors, Business, and Management's Discussion and Analysis of Financial Condition and Results of Operation section in our annual report on Form 10-K filed on March 16, 2026, our most recent press release and Form 8-K, and other filings with the SEC. We caution against reliance on any forward-looking statements made today, and we disclaim any obligation to update any forward-looking statements except as required by law. Also during this call, we will discuss certain non-GAAP financial measures. Reconciliations of these non-GAAP items to the most directly comparable GAAP financial measures are provided in today's earnings release, available on the IR section of our website. These non-GAAP measures are not intended to be a substitute for GAAP results. Unless otherwise stated, we will refer to our financial results on a non-GAAP basis.

Additionally, unless otherwise stated, all discussions today refer to our results from continuing operations, and all comparisons discussed today for the second quarter of fiscal 2026 are against the same period a year ago. Please note that a supplemental slide deck outlining selected operating metrics is available on the IR section of our website. Following our prepared remarks, Mike and Stuart will take your questions. Please limit yourself to one question and one follow-up question. With that, I will turn the call over to Mike.

Thanks, Daniel, and good morning, everyone. I want to start by recognizing the more than 150,000 associates across Dollar Tree whose commitment to our customers drives everything we do. They're creating a more relevant shopping experience through a better assortment, better-run stores, more consistent execution, and a customer-first mindset that was reflected in our results this quarter. The second quarter represented another period of progress for Dollar Tree. Improved execution across the business drove financial results above the high end of our outlook range. We're building a stronger business by investing and strengthening the value, convenience, and discovery we provide our customers, and the quarter's results reflect those efforts. The Dollar Tree team delivered robust top and bottom-line results. Net sales growth increased 7% to $4.9 billion. Comp store sales growth increased 3.7%, exceeding our expectations. Customer traffic was positive, 0.4%, while average ticket increased 3.3%.

Diluted earnings per share were $2.70. That includes $1.31 from the combined net impact of tariff refunds, reinvestments, and certain duties on aluminum pans and paper plates. Beyond these discrete impacts, the underlying business continues to strengthen. We are driving a better assortment in more and better-run stores and speaking to our customers in ways we never have before. While it's still early, the customer response and performance we're seeing gives us confidence in these initiatives and in the long-term opportunity ahead. Improving the fundamentals of a nearly 9,500 small-box retail business takes time. It starts with getting the basic blocking and tackling right. We are running cleaner, brighter, and better-stocked stores. We're encouraged that those everyday operational improvements are becoming more visible in both our customer metrics and financial results. We're pleased with our performance this quarter.

We delivered some of our most compelling comp results in several years, with positive traffic earlier than we expected and strong comp growth on top of the 6.5% comp we delivered in the second quarter last year. That performance is a strong indication that the strategies we've put in place are gaining traction and that we're building real momentum in the business. Last year, we outlined strategies for re-accelerating traffic and top-line growth. The sequential traffic improvement helped drive our best two-year comp stack since 2023. We're also encouraged by traffic trends that strengthened on both a one-year and two-year basis as we moved throughout the quarter. We believe those trends speak to the underlying momentum in the business and the progress we are making in driving more consistent, sustainable top-line growth.

We achieved this performance by staying focused on the fundamentals and executing against the priorities we outlined earlier this year. I want to remind you of a few of those priorities and the progress we're making against them. First, we leaned into those categories and price points where customers are responding most positively. We are enhancing our assortment accordingly so that it is broader and appeals to a wider spectrum of income levels. It's the combination of a compelling opening price point, deep value, greater choice, trusted brands, and new categories that makes the Dollar Tree value proposition so powerful, and that brings our customers back to the store. Multi-price penetration increased approximately 400 basis points year over year to 17% of total sales. We are bringing more excitement, discovery, relevance, and choice to the shopping experience while maintaining the value that has always defined Dollar Tree.

When you combine a more relevant assortment with a cleaner, better-run store, the customer's response is even greater. That is reflected in the strengthening traffic trends we saw during the quarter and gives us confidence that the actions we are taking are resonating with shoppers. Second, we continued strengthening our marketing capabilities and customer outreach. We doubled down on our value message through our 40th anniversary celebration, reinforcing what has made Dollar Tree special for four decades: value, convenience, and discovery, while showcasing how the brand is evolving to offer customers even more choice, relevance, and that thrill of the hunt. We are bringing the Dollar Tree value proposition to life in new ways and giving customers more reasons to visit our stores more often. Third, we remain focused on operational execution.

We continued reinforcing our G.O.L.D. standards and partnering with our field teams to deliver a more consistent customer experience across the fleet. Over the past year, we've made measurable progress in elevating the shopping experience across our stores. At Investor Day last October, we shared that approximately half of our stores were in the opportunity for improvement category, meaning that they fell below our standards. Today, that number is about one-third of the fleet, reflecting the significant work our operators have done to improve execution, store conditions, and consistency. But we're not satisfied with that progress. As our stores improve, we are continuing to raise the bar and make our standards more rigorous. We're seeing that improvement reflected not only in our internal measures, but also in improving customer sentiment around the shopping experience.

There is still more work to do, but we are holding ourselves to a higher standard and building a more consistent experience across the fleet. While we still have opportunities to improve stores that remain below our standards, we believe the larger value creation opportunity is in sustaining the gains we've made and continuing to raise the level of execution across the fleet. The next phase is about making those improvements durable and repeatable. We are embedding stronger operating disciplines across the organization so that better execution becomes the standard, not the exception. Over time, we believe that will translate into a more productive store base, a better and more consistent customer experience, and stronger financial performance. We strengthened key areas including in-stock levels, shopability, store recovery, and store level planning.

When stores are well run, they're easier to shop, better for our associates and customers, and more productive for the business. The same operating disciplines that create a better shopping experience also improve inventory control, merchandise protection, and compliance with our standards. This shows up in our shrink statistics. Shrink was favorable during the quarter and contributed to our improvement and profitability. Finally, we continued to improve the shopping experience through targeted store refreshes and renovations designed to make our stores cleaner, brighter, and easier to shop. These updates help ensure the shopping environment better reflects the strength of the Dollar Tree brand. While it is still early and we are continuing to evaluate the results and refine our approach, we see an attractive opportunity to strengthen the existing fleet and improve the customer experience over time. Let's turn now to the macro. The consumer environment remains dynamic.

Customers continue managing household budgets carefully, shopping with purpose, and prioritizing value and affordability. Our data shows we grew sales across all income cohorts. Households we serve were up nicely year over year with gains skewing to the middle and higher income households. Comp strength was broad-based across the assortment with personal care and toys notable outperformers. Discretionary performed well and consumables delivered exceptional comp growth. A couple of points are worth highlighting. First, the inflationary backdrop continues to pressure all household budgets, particularly for lower income consumers. As our customers look for ways to stretch their dollars, they are increasingly turning to Dollar Tree for everyday essentials at compelling opening price points and pack sizes that help them manage their budgets. At the same time, our value and convenience and the breadth of our assortment is resonating across all income cohorts.

Second, we were pleased with discretionary performance despite pockets of helium shortages across our store fleet, which created a modest headwind during the quarter. We estimate helium-related in-stock challenges reduced total sales by approximately $15 million, or about 30 basis points of comp. We continue to work closely with our vendors to understand the expected recovery of supply. Against that backdrop, the performance of discretionary reinforces our confidence in the broader strength we are seeing across the assortment. Let me turn to tariffs and the tariff refunds we received during the quarter. We received approximately $383 million, giving us a meaningful opportunity to reinvest in the business and further strengthen our value proposition for our customers. We are putting those funds to work in areas where we believe they can have the greatest and most lasting impact.