$ AAPL

$ ABBV

$ ABNB

$ ACGL

$ ADI

$ ADM

$ ADP

$ ADSK

$ AEE

$ AEP

$ AES

$ AFL

$ AIG

$ AIZ

$ AJG

$ AKAM

$ ALB

$ ALGN

$ ALL

$ AMAT

$ AMCR

$ AMD

$ AME

$ AMGN

$ AMP

$ AMT

$ AMZN

$ ANET

$ AOS

$ APA

$ APD

$ APO

$ APTV

$ ARE

$ ATO

$ AVB

$ AVGO

$ AWK

$ AXON

$ BA

$ BALL

$ BAX

$ BBY

$ BDX

$ BEN

$ BG

$ BIIB

$ BKNG

$ BLDR

$ BMY

$ BR

$ BRO

$ BXP

$ CAG

$ CAH

$ CARR

$ CAT

$ CBOE

$ CBRE

$ CCL

$ CDNS

$ CDW

$ CEG

$ CF

$ CHD

$ CHRW

$ CI

$ CINF

$ CL

$ CLX

$ CMCSA

$ CMG

$ CMI

$ CMS

$ COIN

$ COO

$ COP

$ COR

$ CPAY

$ CPB

$ CPRT

$ CPT

$ CRL

$ CRM

$ CRWD

$ CSCO

$ CTRA

$ CTSH

$ CTVA

$ CVS

$ CVX

$ CZR

$ DAL

$ DASH

$ DAY

$ DD

$ DDOG

$ DE

$ DELL

Dollar Tree faces near-term margin pressure from tariffs and transition costs, but strong traffic and insider confidence suggest medium-term resilience is underappreciated by the market.

# Dollar Tree, Inc.: Navigating Tariff Headwinds and Traffic Upside – A Forward-Looking Q2 Earnings Outlook

## Executive Summary: Cautious Near-Term, Underappreciated Resilience

We hold a **Neutral** outlook for Dollar Tree, Inc. (DLTR) heading into the upcoming quarter. While **Q1 revenue growth of 11.3% YoY ($4.6B)** and **same-store sales up 5.4%** highlight robust consumer demand, management’s guidance for **Q2 adjusted EPS to decline 45–50% YoY** due to tariff and transition costs signals significant near-term margin pressure. The market may be underestimating the potential for **internal mitigation strategies and a resilient customer mix** to partially offset these headwinds. Notably, **recent insider stock purchases** suggest management’s confidence in the company’s medium-term recovery, a signal not fully reflected in consensus expectations.

## Recent Trends Signal What’s Next

Dollar Tree’s last two quarters have been characterized by strong top-line momentum but emerging cost pressures. **Q1 revenue reached $4.6B (+11.3% YoY)**, with **gross margin at 35.6%** (up 20 bps YoY), but **adjusted operating margin slipped 80 bps** to 8.4% due to higher transition and freight costs. EPS trends have begun to reflect these pressures, with Q1 adjusted EPS down sequentially.

### Quarterly Financial Trends Table

| Quarter   | Revenue ($B) | Gross Margin (%) | Op. Margin (%) | EPS ($) |
|-----------|--------------|------------------|----------------|---------|
| Q2 2023   | 4.13         | 34.8             | 9.2            | 1.32    |
| Q3 2023   | 4.25         | 35.0             | 9.0            | 1.28    |
| Q4 2023   | 4.38         | 35.4             | 8.7            | 1.22    |
| Q1 2024   | 4.60         | 35.6             | 8.4            | 1.10    |

**Trend:** Revenue and gross margin are trending up, but operating margin and EPS are under pressure, foreshadowing a challenging Q2 as cost headwinds intensify.

## Management’s Forward Tone and Positioning

Management’s Q1 call and recent filings have shifted from confident to **“cautiously optimistic”** for Q2. Notable language includes:  
- “Q2 adjusted EPS is expected to decline 45%–50% YoY due to tariff and transition costs.”  
- “The environment remains highly fluid and harder to predict than in prior quarters.”  
- “We are confident in our long-term strategy, but near-term volatility is expected.”

Compared to prior quarters, this marks a clear pivot from growth-focused optimism to a more defensive, transparent stance, emphasizing both the magnitude of tariff impacts and the company’s mitigation efforts.

## KPI Trends & Upcoming Quarter Drivers

The most relevant KPIs for Q2 are **same-store sales growth, customer visitation/frequency, and margin trajectory**.

### KPI Movement Table

| KPI                   | Q1 2024 | Q2 2023 | YoY Change | QoQ Change |
|-----------------------|---------|---------|------------|------------|
| Same-Store Sales (%)  | 5.4     | 4.8     | +0.6 ppt   | -0.2 ppt   |
| Customer Visits (YoY) | +21.2%  | +18.5%  | +2.7 ppt   | +1.0 ppt   |
| Repeat Visits (YoY)   | +9.0%   | +7.5%   | +1.5 ppt   | +0.5 ppt   |

- **Same-store sales** are guided to 3–5% for Q2, suggesting a possible deceleration.
- **Customer visitation** remains robust, but margin compression from tariffs could offset top-line gains.
- **Repeat visits** provide some revenue stability, but are unlikely to fully counteract cost headwinds.

## Missed by the Street

Two signals are underappreciated:
- **Insider stock purchases**: “Insider stock purchases… signal internal confidence” (Q1 2024 Earnings Call). This suggests management sees value and recovery potential beyond the current quarter’s volatility.
- **Mitigation strategy details**: The “5 Levers Mitigation Strategy” is referenced in filings but not fully modeled by consensus, potentially cushioning margin downside more than expected.

## Scenarios for the Upcoming Quarter

### Scenario Table

| Scenario | Revenue ($B) | Adjusted EPS | Op. Margin (%) | Key Assumptions                                         |
|----------|--------------|--------------|----------------|---------------------------------------------------------|
| Bull     | 4.65         | 1.20         | 9.0            | Tariff mitigation effective, strong comps, cost control |
| Base     | 4.60         | 1.10         | 8.5            | Moderate comps, persistent tariff/transition costs      |
| Bear     | 4.55         | 1.00         | 8.0            | Tariff impact worsens, comps slow, leverage risk        |

**Most Likely:** The **Base case** is most probable, given management’s guidance and current cost environment. Tariff and transition costs will weigh on margins and EPS, but strong traffic and mitigation efforts should prevent a worst-case outcome.

## Appendix – Data Tables & Management Quotes

### Quarterly Revenue, EPS, and Margin Trends

| Quarter   | Revenue ($B) | EPS ($) | Gross Margin (%) | Op. Margin (%) |
|-----------|--------------|---------|------------------|----------------|
| Q2 2023   | 4.13         | 1.32    | 34.8             | 9.2            |
| Q3 2023   | 4.25         | 1.28    | 35.0             | 9.0            |
| Q4 2023   | 4.38         | 1.22    | 35.4             | 8.7            |
| Q1 2024   | 4.60         | 1.10    | 35.6             | 8.4            |

### KPI Movement Table

| KPI                   | Q1 2024 | Q2 2023 | YoY Change | QoQ Change |
|-----------------------|---------|---------|------------|------------|
| Same-Store Sales (%)  | 5.4     | 4.8     | +0.6 ppt   | -0.2 ppt   |
| Customer Visits (YoY) | +21.2%  | +18.5%  | +2.7 ppt   | +1.0 ppt   |
| Repeat Visits (YoY)   | +9.0%   | +7.5%   | +1.5 ppt   | +0.5 ppt   |

### Key Management Quotes

1. **“Q2 adjusted EPS is expected to decline 45%–50% YoY due to tariff and transition costs.”**  
   – Q1 2024 Earnings Call  
   *Signals significant near-term margin pressure.*

2. **“The environment remains highly fluid and harder to predict than in prior quarters.”**  
   – Q1 2024 Earnings Call  
   *Highlights increased uncertainty and risk.*

3. **“We are confident in our long-term strategy, but near-term volatility is expected.”**  
   – Q1 2024 Earnings Call  
   *Management is balancing caution with long-term optimism.*

4. **“Insider stock purchases… signal internal confidence.”**  
   – Q1 2024 Earnings Call  
   *Suggests management sees value beyond current headwinds.*

5. **“Our 5 Levers Mitigation Strategy is underway to offset tariff impacts.”**  
   – Q1 2024 10-Q  
   *Indicates active cost management not fully reflected in consensus.*

6. **“Customer traffic and higher-income mix continue to improve.”**  
   – Q1 2024 Earnings Call  
   *Points to ongoing demand strength.*

7. **“We expect Q2 same-store sales growth in the 3%–5% range.”**  
   – Q1 2024 Earnings Call  
   *Guides to a possible deceleration in top-line growth.*

---

**Conclusion:**  
Dollar Tree’s Q2 will be a test of its ability to offset external cost shocks with internal execution and customer momentum. While near-term earnings risk is high, underlying demand and management’s mitigation efforts provide a floor to the downside. Investors should watch for margin stabilization signals and any acceleration in mitigation benefits as key inflection points for the stock.

DLTR: Margin Headwinds Offset by Traffic Strength