Dollar Tree's Q2 FY2026 diluted EPS rose to $2.70 from $0.75, but $1.31 of that came from one-time IEEPA tariff refunds; net sales grew 7.0% on a 3.7% comp driven mostly by higher average ticket, and full-year adjusted EPS guidance rose to $7.70–$8.05.
Revenue
$4.9B
+7.0% YoY
Net income
$515M
+230.9% YoY
Diluted EPS
$2.70
+260.0% YoY
Operating margin
14.1%
Overview
Dollar Tree's second quarter of fiscal 2026 (the 13 weeks ended August 1, 2026) looks spectacular on the surface: operating income nearly tripled to $690.1 million and diluted EPS jumped from $0.75 to $2.70. Most of that jump is a one-time windfall. After the U.S. Supreme Court ruled in February 2026 that certain tariffs imposed in 2025 under the International Emergency Economic Powers Act (IEEPA) were unlawful, Dollar Tree received about $369 million in tariff refunds, booked as a reduction in cost of sales, plus $14 million of interest. The company says the net effect of the refunds (after money it has started spending back into the business and a new duty charge) added $1.31 to EPS and 650 basis points (6.5 percentage points) to operating margin.
Strip that out and the underlying business still improved: net sales rose 7.0% to $4,886.5 million, comparable store sales grew 3.7%, and EPS excluding the net refund benefit was about $1.39 ($2.70 minus $1.31, our arithmetic). That compares with the $1.00–$1.15 range management guided to in May, which excluded refunds.
All figures below are from continuing operations, which is now just the Dollar Tree and Dollar Tree Canada stores. Family Dollar was sold on July 5, 2025, and its results appear only in last year's numbers, as "discontinued operations."
Key metrics
Metric
Q2 FY2026
Q2 FY2025
YoY Change
Net sales
$4,886.5M
$4,566.8M
+7.0%
Comparable store sales growth
+3.7%
+6.5%
—
Customer traffic (comparable stores)
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Total net income last year, including Family Dollar, was $188.4 million ($0.91 per diluted share). This year's $514.5 million is up 173.1% on that basis. The comparison in the table uses continuing operations so that both years cover the same set of stores.
Takeaway: Roughly $319 million of this quarter's $690 million operating profit is the net tariff refund, a one-time item. That figure is our arithmetic from the company's disclosures: $369M of refunds minus about $22M of reinvestment markdowns, $15M of reinvestment SG&A and a $13M duty charge. Without it, operating income would be around $371 million, up about 60% on last year's $231 million, with an operating margin near 7.6% against 5.1%. That underlying improvement is real, but it is much smaller than the headline. Management has also said it will spend "a significant portion" of the refund over the rest of 2026, so Q3 EPS is guided to only $0.80–$0.95.
Sales: price and product mix drove most of the growth, not more shoppers
Comparable store sales (sales at stores open for more than 15 months, which strips out the effect of simply opening more stores) rose 3.7%. That came from a 3.3% higher average ticket and 0.4% more customer transactions. Management attributes the higher ticket to "targeted retail price changes executed during the second and third quarters of fiscal year 2025 and higher mix of multi-price penetration."
In the first half as a whole, traffic fell 0.3% and ticket rose 3.9%. So Q2's small positive traffic reading is an improvement on Q1, but most of the growth this year has come from shoppers spending more per visit, not from more visits.
New stores (stores not yet in the comparable base) contributed $225.9 million of net sales in the quarter.
The 10-Q says a global helium shortage hurt sales in the quarter (balloons are a Dollar Tree staple) and "could continue to impact our results."
Multi-price strategy. Dollar Tree's opening price point is $1.25, but it now also sells higher-priced items. This filing doesn't list the specific tiers; the company's earlier public materials describe $3 and $5 tiers. The 10-Q says the multi-price assortment is meant to "increase basket size and drive margin expansion" by adding larger pack sizes, new categories and branded or licensed items it could not sell at a single price. According to the earnings release (8-K Exhibit 99.1), about 710 stores were converted to or added in the multi-price format during the quarter, for roughly 6,600 multi-price stores at quarter end. The 10-Q describes the expanded assortment as being in "the substantial majority" of stores.
Category mix (net sales):
Category
Q2 FY2026
Q2 FY2025
YoY Change
Share of sales
Consumable
$2,521.7M
$2,311.0M
+9.1%
51.6%
Variety
$2,347.7M
$2,236.0M
+5.0%
48.0%
Seasonal
$17.1M
$19.8M
−13.6%
0.4%
Consumables (everyday necessities like food and cleaning supplies) grew almost twice as fast as variety merchandise (discretionary items like party goods, crafts and home décor). That shift matters for margins: the 10-Q cites "unfavorable sales mix resulting from lower sales of high margin discretionary merchandise" as a drag on gross margin.
Gross margin: tariff refunds dominate, but the underlying rate also rose
Gross margin is the share of sales left after the cost of the goods sold. It rose from 34.4% to 42.9%. According to the 10-Q, the refund receipt alone lowered the cost-of-sales rate by 755 basis points. The earnings release puts the net refund impact on gross margin (after reinvestment markdowns and the duty charge) at 680 basis points. That implies an underlying gross margin of roughly 36.1%, still about 1.7 points above last year.
What the 10-Q says moved the rest:
Helped: lower tariff costs than a year ago, lower shrink (inventory lost to theft, damage or error) "from favorable inventory count results," and occupancy cost leverage (rent spread over more sales).
Hurt: higher markdowns, including about $22.0 million tied to the tariff-refund reinvestment program; a $13.0 million charge for antidumping and countervailing duties on paper plates and aluminum pans imported from Southeast Asia (the Commerce Department is investigating whether they used Chinese inputs to avoid China duties); and the weaker mix of discretionary goods noted above.
Management expects more reinvestment markdowns and higher freight expenses in Q3 and Q4.
A separate duty risk remains open. The company estimates its exposure to retroactive duties at up to about $11 million for aluminum pans and $15 million for paper plates, but it has not reserved for them because it does not consider a loss probable. A final ruling on aluminum pans was due August 31, 2026, after this 10-Q was filed. The paper-plates deadline is October 14, 2026.
SG&A and the Family Dollar transition
SG&A (selling, general and administrative costs: store wages, rent-like overheads, marketing and head office) rose 5.6% to $1,426.6 million, slower than sales, so the rate fell 40 basis points to 29.2% of revenue. The 10-Q credits "lower payroll expenses and lower consulting fees." Store payroll fell because the labor needed for last year's price changes and the multi-price rollout did not recur. Partly offsetting this were higher marketing spend (including tariff-reinvestment costs, about 30 bps per the release) and more depreciation from store investments.
Corporate SG&A fell to $130.8 million from $147.6 million, consistent with the post-Family Dollar downsizing of head office.
Transition services agreement income (net fees Family Dollar pays Dollar Tree for shared back-office services during an 18-month handover) was $17.7 million, against $8.0 million a year ago. This income ends when the 18-month period runs out, around January 2027.
Last year's discontinued Family Dollar results (income of $32.9 million in Q2 FY2025) included a $144.1 million loss on disposal. Dollar Tree still guarantees some Family Dollar store leases ($20.0 million in the second year after the sale) and has agreed to indemnify Family Dollar in certain talc and acetaminophen product-liability cases.
First half (26 weeks)
Metric
1H FY2026
1H FY2025
YoY Change
Net sales
$9,857.0M
$9,203.3M
+7.1%
Comparable store sales growth
+3.6%
+5.9%
—
Gross margin
39.8%
35.0%
+4.8 pts
Operating income
$1,163.4M
$615.1M
+89.1%
Income from continuing operations
$861.8M
$469.0M
+83.8%
Diluted EPS, continuing
$4.44
$2.22
+100.0%
Adjusted diluted EPS, continuing (non-GAAP)
$4.42
$2.03
+117.7%
Last year's first half included a roughly $62 million insurance gain from the tornado that destroyed the Marietta, Oklahoma distribution center. That is why adjusted EPS was lower than GAAP EPS a year ago.
Stores, cash and buybacks
Stores: 188 opened and 34 closed in the first half (254 opened a year earlier), ending at 9,436 stores and 84.0 million selling square feet. The earnings release says 75 stores opened in Q2. A new 1.0 million sq. ft. distribution center near Phoenix opened in May 2026, and the rebuilt Marietta DC is due by spring 2027. Management warns both may "modestly impact gross margin in the near-to-mid term" while they ramp up.
Cash flow: operating cash flow from continuing operations was $1,565.5 million in the first half, against $639.2 million a year earlier. That includes $383 million of tariff refunds and interest, higher payables and lower inventory. The earnings release reports Q2 free cash flow (operating cash flow minus capital spending) of $675.2 million, against $15.6 million a year ago. Inventory was $2,452.2 million, 8.6% below a year earlier even though sales were up 7%.
Buybacks: Dollar Tree repurchased 5.6 million shares for $605.4 million in Q2 (average price $108.43). That included a $500 million block trade in June bought from selling holders that included funds affiliated with activist investor Mantle Ridge. First-half buybacks totaled $1.2 billion. Diluted share count fell 8.1% year over year to 190.9 million, which accounts for part of the EPS growth. The board refilled the authorization to $2.5 billion in July.
Balance sheet: $1,058.1 million of cash and $2,933.5 million of long-term debt, including a new $500 million term loan taken in March 2026. No commercial paper was outstanding.
Guidance and outlook
From the August 27, 2026 earnings release (8-K Exhibit 99.1):
Fiscal 2026
Q3 FY2026
Net sales (continuing)
$20.5B–$20.7B (unchanged)
$5.0B–$5.1B
Comparable store sales
+3% to +4%
+3.0% to +4.0%
Adjusted diluted EPS
$7.70–$8.05, incl. ~$0.60 net tariff-refund benefit
$0.80–$0.95, incl. ~$0.50 reinvestment cost
New stores / closings
~400 / ~75
—
The previous full-year range (May 2026) was $6.70–$7.10 and excluded tariff refunds. Taking out the ~$0.60 refund benefit, the new range works out to about $7.10–$7.45 (our arithmetic). That is a genuine raise of roughly $0.35–$0.40 from underlying operations, even though the sales outlook did not change. The earnings release also says Q2 EPS beat the top of management's own outlook.
Our read: The core business is doing better than a year ago. Comparable sales are growing about 3.5–4%, underlying gross margin is up on lower shrink and tariff costs, and corporate costs are shrinking after the Family Dollar exit. But growth is still coming mostly from price and mix rather than more shoppers. The mix is also shifting toward lower-margin consumables, and much of the refund windfall is being spent in the second half on markdowns, marketing and freight. That explains the thin Q3 guide. Three things to watch in Q3:
Whether the reinvestment spending lifts traffic, which has been flat to slightly negative this year.
The outcome of the aluminum-pan and paper-plate duty cases.
How much of the margin gain holds once the refunds and the Family Dollar service fees stop.