Q2 2025 Dollar Tree Inc Earnings Call

Speaker #3: Greetings and welcome to the Dollar Tree Q2 2025 earnings call. At this time, all participants are in a listen-only mode. All questions and answers sent to you will follow the formal presentation.

David Brown: Greetings and welcome to the Dollar Tree Q2 2025 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. You may be placed into the question queue at any time by pressing star one on your telephone keypad, and we ask you to please ask one question and then return to the queue. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Robert LaFleur, Senior Vice President, Investor Relations. Bob, please go ahead.

Speaker #3: You may be placed into the question queue at any time by pressing *1 on your telephone keypad. We ask that you please ask one question and then return to the queue.

Speaker #3: As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Bob LaFleur, Senior Vice President Investor Relations.

Speaker #3: Bob, please go ahead.

Speaker #4: Good morning, and thank you for joining us today to discuss Dollar Tree's second quarter fiscal 2025 results. With me today are Dollar Tree's CEO, Mike Creedon, and CFO, Stewart Glendinning.

Robert LaFleur: Good morning, and thank you for joining us today to discuss Dollar Tree's second quarter fiscal 2025 results. With me today are Dollar Tree's CEO, Michael 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.

Speaker #4: 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.

Speaker #4: 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 operations section in our annual report on Form 10-K, filed on March 26, 2025, our most recent press release, and Form 8-K, and other filings with the SEC.

Robert LaFleur: 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 operations section in our annual report on Form 10-K filed on March 26, 2025, our most recent press release in 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 GAAP basis.

Speaker #4: 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.

Speaker #4: 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 IERA section of our website.

Speaker #4: 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 GAAP basis.

Speaker #4: 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 2025 are against the same period a year ago.

Robert LaFleur: 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 2025 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, Michael and Stewart will take your questions. Given the number of callers who would like to participate in today's session, we ask that you limit yourself to one question. I now like to turn the call over to Michael.

Speaker #4: Please note that a supplemental slide deck outlining selected operating metrics is available on the IERA section of our website. Following our prepared remarks, Mike and Stewart will take your questions.

Speaker #4: Given the number of callers who would like to participate in today's session, we ask that you limit yourself to one question. I'd now like to turn the call over to Mike.

Speaker #5: Thanks, Bob. Good morning, everyone, and thank you for joining us today. With the closing of the Family Dollar sale, the second quarter represents an important milestone in the evolution of the Dollar Tree story.

Michael Creedon: Thanks, Bob. Good morning, everyone, and thank you for joining us today. With the closing of the Family Dollar sale, the second quarter represents an important milestone in the evolution of the Dollar Tree story. In addition to closing the sale, I'm proud to say we delivered another strong quarter with results exceeding the high end of our expectations and reflecting a high level of execution across the board. The timing of the impacts of tariffs and our mitigation activities played out differently than we originally anticipated, with some of the net positive benefits of our mitigation initiatives coming earlier in Q2 and the tariff impacts shifting to later in the year. Having said that, we are pleased with our momentum and our team's ability to adapt to a rapidly changing landscape.

Speaker #5: In addition to closing the sale, I'm proud to say we delivered another strong quarter with results exceeding the high end of our expectations and reflecting a high level of execution across the board.

Speaker #5: The timing of the impacts of tariffs and our mitigation activities played out differently than we originally anticipated. With some of the net positive benefits of our mitigation initiatives coming earlier in Q2, and the tariff impacts shifting to later in the year.

Speaker #5: Having said that, we are pleased with our momentum and our team's ability to adapt to a rapidly changing landscape. The second quarter unfolded against a volatile backdrop for both the consumer and retail industry, as the economy continued to adjust to elevated tariffs, persistent cost pressures, and a static labor market.

Michael Creedon: The second quarter unfolded against a volatile backdrop for both the consumer and retail industry as the economy continued to adjust to elevated tariffs, persistent cost pressures, and a static labor market. In today's environment, customers are seeking value and convenience more than ever, and Dollar Tree is uniquely positioned to deliver both. Whether it's a mom stretching her grocery budget, a college student outfitting a dorm room, or a higher-income shopper attracted to an expanded assortment of everyday essentials, our stores are increasingly the destination of choice. This context is important because our Q2 performance was not just about exceeding a set of earnings expectations. It was about gaining share, expanding our relevance to a broader base of customers, and proving once again that Dollar Tree thrives when customers focus on value. Let's walk through the Q2 highlights.

Speaker #5: In today's environment, customers are seeking value and convenience more than ever. And DOLLAR TREE is uniquely positioned to deliver both. Whether it's a mom stretching her grocery budget, a college student outfitting a dorm room, or a higher-income shopper attracted to an expanded assortment of everyday essentials, our stores are increasingly the destination of choice.

Speaker #5: This context is important because our Q2 performance was not just about exceeding a set of earnings expectations; it was about gaining share, expanding our relevance to a broader base of customers, and proving once again that Dollar Tree thrives when customers focus on value.

Speaker #5: So, let's walk through the Q2 highlights. Net sales increased 12.3% to $4.6 billion, driven by a 6.5% comp sales growth, which is a solid result in a quarter without major traffic-driving events or holidays.

Michael Creedon: Net sales increased 12.3% to $4.6 billion, driven by a 6.5% comp sales growth, which is a solid result in a quarter without major traffic-driving events or holidays. Importantly, comp growth was nicely balanced between traffic and ticket and between consumables and discretionary. In fact, it's been two years since we've achieved a discretionary comp this high. Additionally, unit growth was positive, even with the limited pricing actions we took in the quarter. The bottom line was strong, with adjusted EPS of $0.77 coming in ahead of our outlook. Stewart will walk you through the details of how Q2 benefited from some timing issues and how those should flow through the balance of the year. This positive momentum and consistency of execution demonstrates our growing appeal as a value retailer in periods of increased volatility.

Speaker #5: Importantly, comp growth was nicely balanced between traffic and ticket, as well as between consumables and discretionary. In fact, it's been two years since we've achieved a discretionary comp this high.

Speaker #5: Additionally, unit growth was positive, even with the limited pricing actions we took in the quarter. The bottom line was strong, with adjusted EPS of $0.77 coming in ahead of our outlook.

Speaker #5: Stewart will walk you through the details of how Q2 benefited from some timing issues and how those should flow through the balance of the year.

Speaker #5: This positive momentum and consistency of execution demonstrates our growing appeal as a value retailer in periods of increased volatility. More importantly, we believe the customer gains we've made are sustainable, a belief underscored by our growing understanding of the dynamics driving these gains.

Michael Creedon: More importantly, we believe the customer gains we've made are sustainable, a belief underscored by our growing understanding of the dynamics driving these gains. Our dollar and unit share gains accelerated in Q2, providing additional evidence that our value proposition is resonating with customers. Our strong performance was led by seasonal items, party, balloons, and personal items, as customers find more items through our expanded assortment to help them live and celebrate their lives. As of the end of Q2, we have added 2.4 million new customers on a last 12 months basis, consistent with our pace in recent quarters. Nearly two-thirds of those new customers came from households earning $100,000 or more. Underscoring growing engagement, the number of shoppers visiting three or more times a month increased by 11% in Q2, a sequential improvement from the 9% growth we saw last quarter.

Speaker #5: Our dollar and unit share gains accelerated in Q2, providing additional evidence that our value proposition is resonating with customers. Our strong performance was led by seasonal items, party, balloons, and personnel items, as customers find more items through our expanded assortment to help them live and celebrate their lives.

Speaker #5: As of the end of Q2, we have added 2.4 million new customers on a last 12-month basis. Consistent with our pace in recent quarters, and nearly two-thirds of those new customers came from households earning $100,000 or more.

Speaker #5: Underscoring growing engagement, the number of shoppers visiting three or more times a month, increased by 11 percent in Q2. A sequential improvement from the 9 percent growth we saw last quarter.

Speaker #5: While sales growth was strong across all income cohorts, we continued to see especially strong performance for middle- and higher-income customers, with households earning over $100,000 per year providing a meaningful portion of our Q2 growth.

Michael Creedon: While sales growth was strong across all income cohorts, we continue to see especially strong performance from middle and higher-income customers, with households earning over $100,000 per year providing a meaningful portion of our Q2 growth. The strength of these results reflects how our value, convenience, and discovery proposition is resonating with more and more customers and leading to increased trade-in activity. The increasing relevance of our expanded assortment is helping us attract and, more importantly, retain a broader range of shoppers. To support the rollout of our expanded assortment, we completed 3,600 3.0 format store conversions through the end of Q2 and remain on track to reach our target of approximately 5,000 stores by year-end. Recall that last quarter we said the distinctions amongst our various multi-price and non-multi-price store formats were beginning to blur as we roll out certain aspects of the expanded assortment across all store formats.

Speaker #5: The strength of these results reflects how our value-convenience and discovery proposition is resonating with more and more customers and leading to increased trade-in activity.

Speaker #5: The increasing relevance of our expanded assortment is helping us attract and, more importantly, retain a broader range of shoppers. To support the rollout of our expanded assortment, we completed 3,600 3.0 format store conversions through the end of Q2 and remain on track to reach our target of approximately 5,000 stores by year-end.

Speaker #5: Recall that last quarter we said the distinctions amongst our various multi-price and non-multi-price store formats were beginning to blur as we roll out certain aspects of the expanded assortment across all store formats.

Speaker #5: And since the flexibility of multi-price is increasingly embedded across all our stores, the relative performance among the various formats is less meaningful. As you can see from our aggregate comp this quarter, the business is doing exceptionally well, and we continue to be pleased with the positive contribution from our expanded assortment.

Michael Creedon: Since the flexibility of multi-price is increasingly embedded across all our stores, the relative performance among the various formats is less meaningful. As you can see from our aggregate comp this quarter, the business is doing exceptionally well, and we continue to be pleased with positive contribution from our expanded assortment. Expanding our assortment to include items at a variety of price points is fast becoming the standard Dollar Tree model. It enhances our flexibility, whether through larger pack sizes, better quality items, or entirely new categories. The ability to shop for a $1.25 snacks and $3 to $5 home decor items in the same trip makes Dollar Tree more compelling than ever. Our expanded assortment makes us more relevant, broadens our customer base, and increases our flexibility in responding to tariffs and other cost pressures.

Speaker #5: Expanding our assortment to include items at a variety of price points is fast becoming the standard Dollar Tree model. It enhances our flexibility, whether through larger pack sizes, better quality items, or entirely new categories.

Speaker #5: The ability to shop for a $1.25 snacks and three to five dollar home decor items in the same trip makes DOLLAR TREE more compelling than ever.

Speaker #5: Our expanded assortment makes us more relevant, broadens our customer base, and increases our flexibility in responding to tariffs and other cost pressures. Tariffs remain a source of ongoing volatility, and operating in an environment where rates change frequently remains one of our largest challenges.

Michael Creedon: Tariffs remain a source of ongoing volatility, and operating in an environment where rates change frequently remains one of our largest challenges. A quarter ago, we told you we were forecasting the balance of the year based on our expectation that China tariffs would be 30% and the rest of the world would be closer to 10%. Today, tariff guidelines for China have yet to be finalized and currently remain at 30%, but countries like Vietnam, India, and Bangladesh are meaningfully higher than they were in June when we provided our last outlook. We are adapting to this volatility and have several strategies in place across the business to address multiple cost pressures, including tariffs. Over the past few quarters, we've detailed what we call our five levers to mitigate these cost pressures.

Speaker #5: A quarter ago, we told you we were forecasting the balance of the year based on our expectation that China tariffs would be 30 percent, and the rest of the world would be closer to 10 percent.

Speaker #5: Today, tariff guidelines for China have yet to be finalized and currently remain at 30 percent, but countries like Vietnam, India, and Bangladesh are meaningfully higher than they were in June when we provided our last outlook.

Speaker #5: We are adapting to this volatility and have several strategies in place across the business to address multiple cost pressures, including tariffs. Over the past few quarters, we've detailed what we call our five levers to mitigate these cost pressures.

Speaker #5: To review, these levers include negotiating with our suppliers, respecting products, shifting country of origin, dropping non-economic SKUs, and finally, as a last resort, pricing.

Michael Creedon: To review, these levers include negotiating with our suppliers, respecting products, shifting country-of-origin, dropping non-economic SKUs, and finally, and as a last resort, pricing. As we demonstrated in Q2 and expect will be true over the balance of the year, these levers are effective mitigation techniques. Using all five levers helps us to achieve the lowest landing cost possible and keep delivering compelling value to our customers. As many of you saw in our stores, our price initiative started in late Q2 and will continue rolling out across the balance of the year. Following the selective pricing actions that we've taken so far, we are pleased with the understanding and resilience of our customers, and the effect on unit volume has been less than we initially expected. This again demonstrates the power of our value proposition and validates multi-price as a structural advantage as we navigate a challenging tariff landscape.

Speaker #5: As we demonstrated in Q2 and expect will be true over the balance of the year, these levers are effective mitigation techniques. Using all five levers helps us to achieve the lowest landed cost possible and keep delivering compelling value to our customers.

Speaker #5: As many of you saw in our stores, our price initiatives started in late Q2 and will continue rolling out across the balance of the year.

Speaker #5: Following the selective pricing actions that we've taken so far, we are pleased with the understanding and resilience of our customers, and the effect on unit volume has been less than we initially expected.

Speaker #5: This again demonstrates the power of our value proposition and validates multi-price as a structural advantage as we navigate a challenging tariff landscape. In a few minutes, Stewart will share more details on our tariff mitigation efforts in Q2 and for the rest of the year.

Michael Creedon: In a few minutes, Stewart Glendinning will share more details on our tariff mitigation efforts in Q2 and for the rest of the year. Beyond the P&L, execution was strong across the business. Our inventory levels are healthy heading into the fall and holiday seasons. Supply chain performance remains solid, with strong in-stocks, favorable freight compared to last year, and efficiency gains from DC realignment projects in Odessa and Ocala. In real estate, we have opened 254 new stores so far this year, including 42 former Party City locations, and are on track to hit our full-year target of approximately 400 stores. Additionally, we have converted 26 former Family Dollar combo stores to full Dollar Tree stores and expect to convert the remaining 31 stores by year-end. We remain pleased with the outperformance of our new stores, particularly the 99 Cents Only conversions.

Speaker #5: Beyond the P&L, execution was strong across the business. Our inventory levels are healthy heading into the fall and holiday seasons. Supply chain performance remains solid, with strong in-stocks, favorable freight compared to last year, and efficiency gains from DC realignment projects in Odessa and Okala.

Speaker #5: In real estate, we have opened 254 new stores so far this year, including 42 former Party City locations, and are on track to hit our full-year target of approximately 400 stores.

Speaker #5: Additionally, we have converted 26 former Family Dollar combo stores to full Dollar Trees, and expect to convert the remaining 31 stores by year-end. We remain pleased with the outperformance of our new stores.

Speaker #5: Particularly, the $0.99-only conversions. Elsewhere in real estate, the renovation of legacy Dollar Tree locations continues to enhance store conditions and improve the overall productivity of our fleet.

Michael Creedon: Elsewhere in real estate, the renovation of legacy Dollar Tree locations continues to enhance store conditions and improve the overall productivity of our fleet. Additionally, our expanded preventative maintenance program is reducing downtime and lost business, including a 15% year-over-year reduction in store close days due to maintenance issues. That is on top of a 50% improvement last year. On August 28, we announced a new partnership with Uber Eats. I'm very excited about this partnership as it represents the next logical step in meeting our customers where they are and helping them shop the way they want to shop. Importantly, this agreement gives us access to Uber Eats' 25 million customers, which is a newer and younger demographic that Dollar Tree has yet to fully tap into. While it's still early days, we are encouraged by the initial response to the launch.

Speaker #5: Additionally, our expanded preventative maintenance program is reducing downtime and lost business, including a 15 percent year-over-year reduction in store closed days due to maintenance issues.

Speaker #5: That is on top of a 50 percent improvement last year. On August 28th, we announced a new partnership with Uber Eats, I'm very excited about this partnership as it represents the next logical step in meeting our customers where they are and helping them shop the way they want to shop.

Speaker #5: Importantly, this agreement gives us access to Uber Eats's 25 million customers, which is a newer and younger demographic that Dollar Tree has yet to fully tap into.

Speaker #5: While it's still early days, we are encouraged by the initial response to the launch. In short, we are executing on growth, productivity, and cost control simultaneously.

Michael Creedon: In short, we are executing on growth, productivity, and cost control simultaneously. Dollar Tree has always thrived in tough times. From our founding in 1986 to today, our formula has been remarkably consistent. Deliver value, convenience, and discovery for our customers. With our newly expanded assortment, we can now offer more compelling products and be more agile in navigating tariffs and other cost pressures, all while offering our customers more discovery at still affordable prices. Our ability to adapt not only positions us to withstand volatility, it positions us to gain share in the face of it. Dollar Tree is built to win in these conditions, offering prices that customers value, pack sizes that help them manage tight budgets, and a range of products from everyday essentials to the joy of the perfect treasure hunt find.

Speaker #5: Dollar Tree has always thrived in tough times. From our founding in 1986 to today, our formula has been remarkably consistent: deliver value, convenience, and discovery for our customers.

Speaker #5: With our newly expanded assortment, we can now offer more compelling products and be more agile in navigating tariffs and other cost pressures—all while offering our customers more discovery at still affordable prices.

Speaker #5: Our ability to adapt, not only positions us to withstand volatility, it positions us to gain share in the face of it. DOLLAR TREE is built to win in these conditions.

Speaker #5: Offering prices that customers value, pack sizes that help them manage tight budgets, and a range of products from everyday essentials to the joy of the perfect treasure hunt find.

Speaker #5: Taken together, our ability to drive traffic, ticket, comp, and market share in a volatile environment highlights the resilience of our model and the ever-increasing agility of our organization.

Michael Creedon: Taken together, our ability to drive traffic, ticket, comp, and market share in a volatile environment highlights the resilience of our model and the ever-increasing agility of our organization. Before I turn things over to Stewart for more detail on our financial results and outlook, I'd like to acknowledge the extraordinary efforts of our associates. In every store, every distribution center, every support function, our people are the reason Dollar Tree continues to perform at such a high level and in a challenging and unpredictable environment. I'd like to give a special shout out for all the hard work that went into the Family Dollar sales process. This was a massive effort that involved nearly every aspect of the business, and I'm especially grateful for the efforts of everyone involved.

Speaker #5: Before I turn things over to Stewart for more detail on our financial results and outlook, I'd like to acknowledge the extraordinary efforts of our associates.

Speaker #5: In every store, every distribution center, and every support function, our people are the reason Dollar Tree continues to perform at such a high level in a challenging and unpredictable environment.

Speaker #5: I'd like to give a special shout-out for all the hard work that went into the Family Dollar sales process. This was a massive effort that involved nearly every aspect of the business, and I'm especially grateful for the efforts of everyone involved.

Speaker #5: The Dollar Tree team's dedication to serving customers and executing our initiatives with urgency delivers great outcomes and will drive our success for many years to come.

Michael Creedon: The Dollar Tree team's dedication to serving customers and executing our initiatives with urgency delivers great outcomes and will drive our success for many years to come. Stewart?

Speaker #5: Stewart?

Speaker #6: Thanks, Mike, and good morning, everyone. Q2 comp sales increased 6.5 percent and adjusted EPS was $0.77. We recognize that this was substantially better than the outlook we provided last quarter when we said we expected Q2 comp sales to be towards the higher end of our full-year range, three to five percent, and that adjusted EPS could be down by as much as half compared to the prior year.

Stewart Glendinning: Thanks, Mike, and good morning, everyone. Q2 comp sales increased 6.5% and adjusted EPS was $0.77. We recognize that this was substantially better than the outlook we provided last quarter when we said we expected Q2 comp sales to be towards the higher end of our full-year range, 3% to 5%, and that adjusted EPS could be down by as much as half compared to the prior year. With respect to comp outperformance, our initial outlook took into account the relative lack of events and holidays in Q2. As the quarter unfolded, we saw that the increasing relevance of our expanded assortment to a wider range of customers overpowered the lack of events, and Q2 comps came in stronger than we expected. With respect to the EPS outperformance, our sales were higher than anticipated. Our pricing actions started earlier.

Speaker #6: With respect to compound performance, our initial outlook took into account the relative lack of events and holidays in Q2. But as the quarter unfolded, we saw that the increasing relevance of our expanded assortment to a wider range of customers overpowered the lack of events and Q2 comps came in stronger than we expected.

Speaker #6: With respect to the EPS outperformance, our sales were higher than anticipated. Our pricing actions started earlier, the timing of how our mitigation efforts impacted COGS differed from our initial expectations, and we were able to leverage our payroll costs in SG&A.

Stewart Glendinning: The timing of how our mitigation efforts impacted COGS differed from our initial expectations, and we were able to leverage our payroll costs in SG&A. The COGS timing difference reflected tariff headwinds shifting from Q2 into Q3 and Q4, and the benefits of our mark-on being higher than expected. While all of these factors will impact the cadence of our EPS in the back half of the year, on a full-year basis, our outlook remains intact. With that, let's go through the details of our second quarter financial performance. For the quarter, net sales increased 12.3% to $4.6 billion. Comparable store sales increased 6.5%. Growth was balanced with increases of 3% in traffic and 3.4% in ticket. Meanwhile, the sales contribution from non-comp stores also exceeded our expectations based on strong results from new store openings and our 99 Cents Only conversions.

Speaker #6: The COGS timing difference reflected tariff headwinds shifting from Q2 into Q3 and Q4, and the benefits of our mark being higher than expected.

Speaker #6: While all of these factors will impact the cadence of our EPS in the back half of the year, on a full-year basis, our outlook remains intact.

Speaker #6: With that, let's go through the details of our second quarter financial performance. For the quarter, net sales increased 12.3 percent to $4.6 billion.

Speaker #6: Comparable store sales increased 6.5 percent, with growth balanced by increases of 3 percent in traffic and 3.4 percent in ticket. Meanwhile, the sales contribution from non-comparable stores also exceeded our expectations, driven by strong results from new store openings and our 99-cent-only conversions.

Speaker #6: Positive performance was broad-based across categories, with comp up 6.7% for consumables and 6.1% for discretionary. This is particularly impressive given the seasonal lull we normally see in Q2.

Stewart Glendinning: Positive performance was broad-based across categories, with comp up 6.7% for consumables and 6.1% for discretionary, which is particularly impressive given the seasonal lull we normally see in Q2. Strength in electronics, hardware, and lawn and garden drove the healthy mix in the quarter. Turning to margins, Q2 gross margin increased 20 basis points to 34.4%. Several factors contributed to this, including lower merchandise costs driven by higher inventory mark-on and lower freight, as well as favorable pricing that helped us offset higher tariffs. We also benefited as our mix shifted away from some lower margin consumable categories. The strong sales comp also helped us leverage occupancy costs. These benefits were partially offset by higher markdown reserves on aged inventory, higher distribution costs, and elevated shrink. While tariffs were a meaningful headwind as expected, we were able to use our five mitigation levers to counteract much of the impact.

Speaker #6: Strength in electronics, hardware, and lawn and garden drove the healthy mix in the quarter. Turning to margins, Q2 gross margin increased 20 basis points to 34.4 percent.

Speaker #6: Several factors contributed to this, including lower merchandise costs driven by higher inventory mark on and lower freight, as well as favorable pricing that helped us offset higher tariffs.

Speaker #6: We also benefited as our mix shifted away from some lower-margin consumable categories. The strong sales comp also helped us leverage occupancy costs. These benefits were partially offset by higher markdown reserves on aged inventory, higher distribution costs, and elevated shrink.

Speaker #6: While tariffs were a meaningful headwind as expected, we were able to use our five mitigation levers to counteract much of the impact. At the Dollar Tree segment level, our Q2 adjusted SG&A rate increased 50 basis points to 26.3 percent, driven by higher store payroll related to stickering activity, wage increases, depreciation, incentive compensation, and repairs and maintenance.

Stewart Glendinning: At the Dollar Tree segment level, our Q2 adjusted SG&A rate increased 50 basis points to 26.3%, driven by higher store payroll related to stickering activity, wage increases, depreciation, incentive compensation, and repairs and maintenance. These were partially offset by lower general liability expenses and sales leverage. While general liability expense was lower than last year, it was higher than we contemplated in our June outlook. As many companies have noted recently, the cost of claims continues to rise across the industry. At the corporate level, adjusted SG&A expense was higher, driven by incentive comp and IT project expense. On a year-over-year basis prior to TSA income, our corporate SG&A rate held steady at 3.1%. Subsequent to the sale of Family Dollar, we received $8 million of TSA income net during the second quarter.

Speaker #6: These were partially offset by lower general liability expenses and sales leverage. While general liability expense was lower than last year, it was higher than we contemplated in our June outlook.

Speaker #6: As many companies have noted recently, the cost of claims continues to rise across the industry. At the corporate level, adjusted SG&A expense was higher, driven by incentive comp and IT project expense.

Speaker #6: On a year-over-year basis, prior to TSA income, our corporate SG&A rate held steady at 3.1 percent. Subsequent to the sale of Family Dollar, we received $8 million of TSA income, net, during the second quarter.

Speaker #6: Adjusted operating income increased 7.4 percent to $236 million, and operating margin decreased 20 basis points to 5.2 percent. This was significantly better than our outlook, reflecting the sales outperformance, expense control, and timing benefits.

Stewart Glendinning: Adjusted operating income increased 7.4% to $236 million, and operating margin decreased 20 basis points to 5.2%. This was significantly better than our outlook, reflecting the sales outperformance, expense control, and timing benefits. Moving on to the balance sheet and free cash flow. Total inventory increased $112 million, or 4.4%, reflecting store growth, our expanded assortment, and inventory mark-on related to our pricing initiatives. We ended the quarter with $666 million in cash and cash equivalents. On the Q2 cash flow statement, we generated $261 million in cash from operating activities and had a capital expenditure of $245 million. This resulted in free cash flow of $16 million, which was a $131 million positive swing year over year. On a year-to-date basis, we have generated $145 million of free cash flow. Additionally, in Q2, we received $668 million of cash proceeds from the sale of Family Dollar.

Speaker #6: Moving on to the balance sheet and free cash flow. Total inventory increased 112 million dollars or 4.4 percent, reflecting store growth, our expanded assortment, and inventory mark on related to our pricing initiatives.

Speaker #6: We ended the quarter with $666 million in cash and cash equivalents. On the Q2 cash flow statement, we generated $261 million in cash from operating activities and had capital expenditures of $245 million.

Speaker #6: This resulted in free cash flow of $16 million, which was a $131 million positive swing year over year. On a year-to-date basis, we have generated $145 million of free cash flow.

Speaker #6: Additionally, in Q2, we received $668 million in cash proceeds from the sale of Family Dollar. On top of that, we expect approximately $425 million in cash tax benefits from the sale, and approximately $100 million in accelerated cash tax benefits as a result of the recently enacted tax bill.

Stewart Glendinning: On top of that, we expect approximately $425 million of cash tax benefits from the sale and approximately $100 million of accelerated cash tax benefits as a result of the recently enacted tax bill. Also, during the quarter, we paid off our $1 billion May 2025 4% senior notes using a combination of commercial paper and available cash on hand. In the near term, we will continue to leverage commercial paper and available cash. In Q2, we repurchased 5 million shares for $501 million, including excise tax. Subsequent to quarter end, we repurchased an additional 0.6 million shares for $71 million. Year to date, we've completed $1 billion in share purchases, or approximately 11.6 million shares at an average price of $86 per share. We ended the quarter with healthy liquidity, a more flexible balance sheet, and ample capacity to fund growth while returning capital to shareholders.

Speaker #6: Also, during the quarter, we paid off our $1 billion May 2025 4 percent senior notes, using a combination of commercial paper and available cash on hand.

Speaker #6: In the near term, we will continue to leverage commercial paper and available cash. In Q2, we repurchased 5 million shares for $510 million, including excise tax.

Speaker #6: Subsequent to quarter end, we repurchased an additional 600,000 shares for $71 million. Year to date, we've completed $1 billion in share purchases, or approximately 11.6 million shares, at an average price of $86.00 per share.

Speaker #6: We ended the quarter with healthy liquidity, a more flexible balance sheet, and ample capacity to fund growth while returning capital to shareholders. Our capital allocation priorities have remained consistent and include: invest in growth for new stores, multi-price conversions, and supply chain efficiency.

Stewart Glendinning: Our capital allocation priorities have remained consistent and include invest in growth for new stores, multi-price conversions, and supply chain efficiency, maintain balance sheet strength and flexibility, and return capital to shareholders through ongoing share repurchases. Now, let me provide an update on our full-year 2025 outlook. We now expect comparable store sales growth of 4% to 6% and adjusted EPS of $5.32 to $5.72, assuming current tariff rates. Gross margin improvement of approximately 50 basis points, driven by pricing, freight, and partially offset by higher tariffs. For the Dollar Tree segment adjusted SG&A, we anticipate approximately 120 basis points of year-over-year deleveraging, driven by a modestly higher outlook for labor and general liability costs. For corporate SG&A, prior to any TSA reimbursement, we expect costs to increase approximately 11% to 12% on a year-over-year basis. TSA proceeds of approximately $55 million to $60 million subject to final adjustments.

Speaker #6: Maintain balance sheet strength and flexibility. Return capital to shareholders through ongoing share repurchases. Now, let me provide an update on our full-year 2025 outlook.

Speaker #6: We now expect comparable sales growth of 4% to 6% and adjusted EPS of $5.32 to $5.72, assuming current tariff rates. Gross margin improvement of approximately 50 basis points is driven by pricing and freight, partially offset by higher tariffs.

Speaker #6: For DOLLAR TREE segment adjusted SG&A, we anticipate approximately 120 basis points of year-over-year deleveraging, driven by a modestly higher outlook for labor and general liability costs.

Speaker #6: For corporate SG&A, prior to any TSA reimbursement, we expect costs to increase approximately 11 to 12 percent on a year-over-year basis. TSA proceeds of approximately 55 to 60 million dollars subject to final adjustments.

Speaker #6: On a net basis, our outlook for adjusted corporate SG&A, net of TSA proceeds, remains essentially unchanged. Finishing the P&L, we expect net interest expense of approximately $100 million and an effective tax rate of approximately 25 percent.

Stewart Glendinning: On a net basis, our outlook for adjusted corporate SG&A and net of TSA proceeds remains essentially unchanged. Finishing the P&L, we expect net interest expense of approximately $100 million and an effective tax rate of approximately 25%. We still expect capital expenditures to be in the range of $1.2 billion to $1.3 billion, including approximately 400 new Dollar Tree store openings. We remain committed to offsetting cost pressures, including tariffs, through our five levers while sustaining investment in growth initiatives and store expansion. Throughout the balance of 2025, we will be focused on consistent execution, disciplined cost control, and delivering value to customers in what remains a challenging macro environment. With that, I'll turn the call back to Mike. Mike.

Speaker #6: We still expect capital expenditures to be in the range of 1.2 to 1.3 billion dollars including approximately 400 new DOLLAR TREE store openings. We remain committed to offsetting cost pressures including tariffs through our five levers, while sustaining investment in growth initiatives and store expansion.

Speaker #6: Throughout the balance of 2025, we will be focused on consistent execution, disciplined cost control, and delivering value to customers in what remains a challenging macro environment.

Speaker #6: And with that, I'll turn the call back to Mike. Mike?

Speaker #5: Thanks, Stewart. Our second quarter results reinforce the unique position DOLLAR TREE holds in today's retail landscape. We delivered strong sales growth, marginal performance, and market share gains, all while navigating cost pressures and a dynamic consumer environment.

Michael Creedon: Thanks, Stewart. Our second quarter results reinforce the unique position Dollar Tree holds in today's retail landscape. We delivered strong sales growth, margin outperformance, and market share gains, all while navigating cost pressures in a dynamic consumer environment. With the Family Dollar divestiture complete, Dollar Tree is now a fully focused business. Every ounce of our leadership attention, capital investment, and operating resources is now directed towards strengthening the core Dollar Tree brand. This sharper focus is already showing up in the pace of conversions, new openings, and faster decision-making on pricing, assortment, and sourcing. Looking ahead, our strategic priorities remain clear. One, continue the rollout of our expanded assortment, which is driving higher traffic, ticket, and discretionary penetration. Two, manage costs with agility. Use our five mitigation levers to protect margins while maintaining customer value. Three, invest in the customer experience with compelling assortments, clean stores, and well-stocked shelves.

Speaker #5: With the Family Dollar divestiture complete, Dollar Tree is now a fully focused business. Every ounce of our leadership attention, capital investment, and operating resources is now directed towards strengthening the core Dollar Tree brand.

Speaker #5: This sharper focus is already showing up in the pace of conversions, new openings, and faster decision-making on pricing assortment and sourcing. Looking ahead, our strategic priorities remain clear: one, continue the rollout of our expanded assortment, which is driving higher traffic, ticket, and discretionary penetration.

Speaker #5: Two, manage costs with agility, use our five mitigation levers to protect margins while maintaining customer value. Three, invest in the customer experience with compelling assortments, clean stores, and well-stocked shelves.

Speaker #5: And four, drive disciplined growth and returns, supported by a strong balance sheet, free cash flow, and the proceeds from family dollar. We entered the back half of the year with strong momentum, healthy inventory, a clear strategy, and the resources to execute.

Michael Creedon: Four, drive disciplined growth and returns, supported by a strong balance sheet, free cash flow, and the proceeds from Family Dollar. We enter the back half of the year with strong momentum, healthy inventory, a clear strategy, and the resources to execute. That gives me tremendous confidence in our ability to deliver for our customers, associates, and shareholders, not just in the near term, but for the long run. Finally, as we mentioned last quarter, we'll be hosting an investor day in New York on October 15th to share a refreshed long-term strategy and financial outlook for the standalone Dollar Tree business. This will be an important opportunity to show you how we intend to build on the momentum we've established and how we see the company evolving over time. Importantly, we will share more details about our updated strategic roadmap and financial framework.

Speaker #5: That gives me tremendous confidence in our ability to deliver for our customers, associates, and shareholders. Not just in the near term, but for the long run.

Speaker #5: Finally, as we mentioned last quarter, we'll be hosting an investor day in New York on October 15th to share a refreshed long-term strategy and financial outlook for the standalone Dollar Tree business.

Speaker #5: This will be an important opportunity to show you how we intend to build on the momentum we've established and how we see the company evolving over time.

Speaker #5: Importantly, we will share more details about our updated strategic roadmap and financial framework. We look forward to showcasing the growth runway ahead, the earnings power of our expanded assortment, and the operational improvements we are embedding across the business.

Michael Creedon: We look forward to showcasing the growth runway ahead, the earnings power of our expanded assortment, and the operational improvements we are embedding across the business. With that, we're ready to take your questions.

Speaker #5: And with that, we're ready to take your questions.

Speaker #7: Thank you. And I'll be conducting a question and answer session. If you'd like to be placed into the question queue, please press *1 on your telephone keypad. As a reminder, we do ask that you please ask one question and return to the queue.

David Brown: Thank you. We'll now be conducting a question and answer session. If you'd like to be placed into the question queue, please press star one on your telephone keypad. As a reminder, we do ask that you please ask one question then return to the queue. Our first question is coming from Michael Lasser from UBS. Your line is now live.

Speaker #7: Our first question is coming from Michael Lasso from UBS. Your line is now live.

Speaker #8: Good morning. Thank you so much for taking my question. Guys, there's a perception out there that as you have more fully rolled out some of your tariff mitigation strategies, including raising price points across your assortment, that the consumer has pushed back.

Michael Lasser: Good morning. Thank you so much for taking my question. There is a perception out there that as you have more fully rolled out some of your tariff mitigation strategies, including raising price points across your assortment, the consumer has pushed back, your comps have slowed, and the perception of relative value has decreased. If this is the case, Dollar Tree's margins are going to be at risk over the long term as it will not have the levers to navigate through a higher cost environment. Why are those points wrong, especially in light of what has been a lot of moving pieces within your full-year guidance suggesting that business does remain somewhat volatile? Thank you so much.

Speaker #8: Your comps have slowed, and the perception of relative value has decreased. If this is the case, Dollar Tree's margins are going to be at risk over the long term, as it will not have the levers to navigate through a higher cost environment.

Speaker #8: So why are those points wrong, especially in light of what there have been a lot of moving pieces within your full-year guidance, suggesting that business does remain somewhat volatile?

Speaker #8: Thank you so much.

Speaker #5: Yeah, thanks, Michael. Michael, we're, we're pleased with our customer response. if you look at mix on all levels of our customer, the traffic and ticket are balanced.

Michael Creedon: Yeah, thanks, Michael. Michael, we're pleased with our customer response. If you look at mix on all levels of our customer, the traffic and ticket are balanced. Our consumables and discretionary are balanced. Across all income levels, Dollar Tree is resonating with our customer. You look at what we're adding last quarter, and in Q1, 50% of the customers we added came from the higher $100,000 price point, salary point. If you look this quarter, that was two-thirds of our customers. We think we're resonating very well with the customer. When you look at these comps, both one-year and on a two-year basis, these are incredibly strong comps that demonstrate the relevance that Dollar Tree holds. Our customers are walking in, and one of the things I love about small boxes, you get a feel for the whole store as soon as you walk in the door.

Speaker #5: Our consumables and discretionary categories are balanced. And across all income levels, Dollar Tree has resonated with our customers. If you look at what we added last quarter in Q1, 50 percent of the customers we added came from the higher $100,000 income bracket.

Speaker #5: salary point. If you look this quarter, that was two-thirds of our customers. So we think we're resonating very well with the customer, and when you look at these comps, both one-year and on a two-year basis, these are incredibly strong comps that demonstrate the relevance that DOLLAR TREE holds.

Speaker #5: Our customers are walking in, and one of the things I love about Dollar Tree is that you get a feel for the whole store as soon as you walk in the door.

Speaker #5: They're walking in, and they're seeing value. We still have 85% of our stores at $2 or less. Think about that. You walk in, and you're finding value around every corner.

Michael Creedon: They're walking in and they're seeing value. We still have 85% of our stores at $2 or less. Think about that. You walk in and you're finding value around every corner. We think our customer is really pleased with that.

Speaker #5: We think our customer is really pleased with that.

Speaker #7: Thank you. And next question is coming from Paula Hughes from City. Your line is now live.

David Brown: Thank you. Our next question is coming from Paul Lejuez from Citi. Your line is now live.

Speaker #9: Hey, thanks, guys. can you talk about the drivers of the higher ticket between AUR and UPT? maybe any more detail you can give about, AUR and discretionary versus consumables and, and just at a high level, just trying to understand what pricing actions were already taken in the second quarter versus what is still planned in the second half.

Paul Lawrence Lejuez: Hey, thanks, guys. Can you talk about the drivers of the higher ticket between AUR and UPT? Maybe any more detail you can give about AUR and discretionary versus consumables? At a high level, just trying to understand what pricing actions were already taken in the second quarter versus what is still planned in the second half. Thank you.

Speaker #9: Thanks.

Speaker #5: Yeah, Paul. When we look at the drivers of it, first of all, that balance that I talked about between discretionary and consumable was really strong.

Michael Creedon: Yeah, Paul. When we look at the drivers of it, first of all, that balance that I talked about between discretionary and consumable was really strong. The balance in traffic and ticket was also strong. Even though we did take some price in Q2, units were still up. That tells us that our customer is accepting they're still finding value in our stores. We look at their reaction, and they'll continue to guide us. As I mentioned in my prepared remarks, the unit performance was actually better than we expected. Those are the major drivers there in terms of the mix and what we've seen on units.

Speaker #5: and then, of course, the balance in traffic and ticket. And even though we did take some price in Q2, units were still up. so that tells us that our customer is, accepting.

Speaker #5: They're still finding value in our stores. and we look at their reaction, and they'll continue to guide us. but as I mentioned in my prepared remarks, the unit performance was actually better than, than we expected.

Speaker #5: So those are the major drivers in terms of the mix and what we've seen in units.

Speaker #7: Thank you. Next question is coming from Edward Kelly from Wells Fargo. Your line is now live.

David Brown: Thank you. Next question is coming from Edward Joseph Kelly from Wells Fargo. Your line is now live.

Speaker #10: Hi, good morning, everyone. I wanted to follow up on guidance. Looking at your guidance for the back half of the year, it implies a fairly, wide comp range of about two to six percent.

Paul Lawrence Lejuez: Hi, good morning, everyone. I wanted to follow up on guidance. Looking at your guidance for the back half of the year, it implies a fairly wide comp range of about 2% to 6%. I was curious if you could maybe talk a bit about why that range would be wide, given you know you have accelerating price. You've mentioned lower than expected elasticity, which is obviously positive. I mean, wouldn't a comp slowdown be a surprise given that? The second part of this is related to bottom line. I was just curious if you could maybe quantify some of the new headwinds that sort of worked their way in, whether it's the incremental tariffs, liability claims, or anything else. Thank you.

Speaker #10: And I was curious if you could maybe talk a bit about why that range would be wide, given you know you have accelerating price. You've mentioned lower than expected elasticity, which is obviously positive.

Speaker #10: I mean, wouldn't a comp slowdown be a surprise, given that? And then, the second part of this is related to bottom line, and I was just curious if you could maybe quantify some of the new headwinds, that sort of worked their way in, whether it's the incremental tariffs, liability claims, or anything else.

Speaker #10: Thank you. Yeah. So I think, looking at the back half of the year, there's a lot of volatility in the marketplace. We can't say how the consumer will react to various price increases that are taking place in general.

Stewart Glendinning: Yeah. I think looking at the back half of the year, there's a lot of volatility in the marketplace. We can't say how the consumer will react to various price increases that are taking place in general. So far, in the first half of the year, we've had a very strong performance. We expect a strong performance in the back part of the year, but we want to be certain that we take account of volatility that consumers are facing. I think that's really the expectation, the answer to your question about the variability in the comp range. In terms of the increased costs that we're facing, on the general liability side, this is not a problem with having more claims. This is something we're seeing across all industry. The cost of settling claims is getting higher.

Speaker #10: So far in the first half of the year, we've had a very strong performance. We expect a strong performance in the back part of the year.

Speaker #10: but we want to be certain that, we take account of volatility that consumers are faced with. So I think that's, that's really the expectation.

Speaker #10: the answer to your, your question about the variability in the, in the comp range. In terms of the, costs, increased costs that we're, we're facing, on the general liability side, this is not a problem with having more claims.

Speaker #10: This is something we're seeing across, across all industry. the cost of settling claims is getting higher, and therefore, while we haven't seen any increase in the rate of claims, we are seeing those claims come in more costly.

Stewart Glendinning: Therefore, while we haven't seen any increase in the rate of claims, we are seeing those claims come in more costly. Just so you understand, this is not the question of sort of million-dollar claims. Most of the claims we have are very, very small, but it's the percentage cost change between settlement last year and the settlements we're seeing now. To put that into context, if you look at last year versus this year, in the second quarter of last year, we had a big charge to catch up some of our general liability reserves. In this year, we didn't have that kind of big charge. We are keeping track as we go of the change in the settlement costs. If you looked at a total year-over-year, our general liability costs this year are expected to be in line with last year, despite that bigger increase.

Speaker #10: And just so you understand, this is not the question of sort of million-dollar claims. Most of the claims we have are very, very small.

Speaker #10: But it's the percentage cost, change between settlement last year and the settlements we're seeing now. When you, to put that into context, if you looked at last year versus this year, in, in the second quarter of last year, we had a big, big charge, to, to catch up some of our, our general liability reserves.

Speaker #10: In this year, we didn't have that kind of big charge. We are keeping track, as we go, of the change in the settlement costs.

Speaker #10: But if you looked at a total year-over-year, our general liability costs this year are expected to be in line with last year despite that, that, that, that bigger increase.

Speaker #10: So that's a sense of that on the, on the other side, we have seen a slightly, increased cost in both shrink, which we called out last quarter, and in markdowns also, we haven't qua, you know, quantified either of those.

Stewart Glendinning: That's a sense of that. On the other side, we have seen a slightly increased cost in both shrink, which we called out last quarter, and in markdowns also. We haven't quantified either of those.

Speaker #7: Thank you. Next question is coming from Simeon Gutman from Morgan Stanley. Your line is now live.

David Brown: Thank you. Next question is coming from Simeon Ari Gutman from Morgan Stanley. Your line is now live.

Speaker #11: Hi, this is Zach on for Simeon. Thanks for taking the question. I was wondering if you could speak to perhaps what a normalized EPS for the full year 2025 would be in the way you see it?

Paul Lawrence Lejuez: Hi, this is Zach on for Simeon. Thanks for taking your question. I was wondering if you could speak to perhaps what a normalized EPS for the full year 2025 would be in the way you see it, because it does seem like there's some one-time items, there's some noise with corporate and TSA, as well as some of the general liability and other tariff impacts. In any way you can to kind of address that and the way you see it, what a normalized level of EPS could be in for the year. Thank you.

Speaker #11: Because it does seem like there's some, one-time items, there's some, excuse me, noise with, with corporate and TSA, as well as, some of the general liability and other tariff impacts.

Speaker #11: So, in, in any way you can to kind of address that and, and, and the way you see it, what, what a normalized level of EPS could be in for, for the year.

Speaker #11: Thank you.

Speaker #10: Yeah, I mean, I think, I think just as you look at the year itself, there are a lot of moving parts, and therefore, you know, are the tariffs that we're facing right now, are they normal or not?

Stewart Glendinning: Yeah, I mean, I think just as you look at the year itself, there are a lot of moving parts. Therefore, are the tariffs that we're facing right now, are they normal or not? The real question here is sort of what you're normalizing for. I think the question sort of behind the question is, okay, what's that flow-through look like for 2026? Maybe it's easier for me to answer your question using that lens. When you look at the factors that are driving this year, we had first going into the tariffs, much higher tariffs, then those tariffs settled down a little bit. In the most recent round of tariffs, there was some increase in the number of countries in which we sourced. Think about India or Vietnam. They sort of had this unusual shape to tariffs during the year.

Speaker #10: So the real question here is, sort of what your normalizing for. I think the question sort of behind the question is, okay, what's that flow-through look like for 2026?

Speaker #10: And maybe it's easier for me to answer your question, using that lens. When you look at the, when you look at the factors that are driving this year, we had first going into the tariffs, much higher tariffs than those tariffs settled down a little bit.

Speaker #10: And then in the most recent round of tariffs, there was some increase in the number of countries in which we in which we source.

Speaker #10: So think about India or Vietnam. As I said, I've had this unusual shape to tariffs during the year. But if you actually looked at our pricing strategies, those strategies were designed as we moved into that sort of second set of tariffs.

Stewart Glendinning: If you actually looked at our pricing strategies, those strategies were designed as we moved into that sort of second set of tariffs. As you look at the final set of tariffs, we've had some increase in this year. We did not take any further changes to address those tariffs, mainly because we felt like we had enough coverage coming through the actions that we had taken. We had other cost benefits that were flowing through our P&L that we felt confident that we could keep the year intact. That was really important for us. Think about the flow-through from a tariff perspective to next year as one that we're sort of running our P&L in a way to maintain our gross margin. We may need some tweaks up and down as we see any further changes in tariffs or as we manage costs.

Speaker #10: As you look at the final set of tariffs, we've had some increase this year. We did not take any further changes to address those tariffs.

Speaker #10: Mainly because we felt like we had enough coverage coming through the actions that we had taken. And we had other cost benefits that were flowing through our P&L that we felt confident we could keep the year intact.

Speaker #10: And that, that was really important for us. So think about the flow-through from a tariff perspective to next year, is one that we're sort of running our P&L.

Speaker #10: In a way, it's to maintain our gross margin. we may need some tweaks up and down as we see any further changes in tariffs or as we manage costs.

Speaker #10: But our five levers are intended to, to sort of address that. Final point is, let me address the sort of one-offs in the year.

Stewart Glendinning: Our five levers are intended to sort of address that. Final point is let me address the sort of one-offs in the year. There are a couple of important one-offs you need to recognize. First, there's an increased cost of stickering, re-signage in the store. That cost, when you look at it in total, is. Somewhere

Speaker #10: And there are a couple of important one-offs you need to recognize. First, there's an increased cost of stickering and re-signage in the store, and that cost, when you look at it in total, is somewhere.

Speaker #1: 115 million dollars for the year, to give you to give you a number. If you take that number, offsetting that in this year are a couple of other items.

Stewart Glendinning: Around $115 million for the year, to give you a number. If you take that number, offsetting that in this year are a couple of other items. The first one is that we are taking the benefit from some inventory which did not have that higher rate of tariff baked into it. That's now coming through our cash register at a higher price. That's a one-time benefit. I think if you also then finally take the fact that we have costs coming through our inventory, our on-hand inventory revaluation, our on-hand inventory mark-ons, that's a one-time benefit that you saw a lot of in the second quarter, which will start to unwind. You'll see it again in the second quarter, in the third quarter, and the fourth quarter, and that'll unwind as we go through the course of this year and likely a little bit into next year.

Speaker #1: The first one is that you you are we are taking the benefit from, some some some inventory which did not have that higher rate of tariff baked into it that we're now that's now coming through our cash register at a higher price.

Speaker #1: That's a that's a one-time benefit. And then I think if you also then finally, take the fact that, we have, costs coming through our inventory, our our on-hand inventory revaluation, our on-hand inventory, mark ons, that's a one-time benefit that you saw a lot of in the second quarter which will start to unwind.

Speaker #1: You'll see it again in the second quarter, the third quarter, and the fourth quarter. That will unwind as we go through the course of this year.

Speaker #1: And likely a little bit into next year. So there's a lot there. I I g I gave you a lot because it is actually a very complex, estimate.

Stewart Glendinning: There's a lot there. I gave you a lot because it is actually a very complex estimate. That's a lot to say that when we get to the end of the year, we balance that out. I think if you looked at a lot of the one-times, there are offsets for those one-times. It's difficult to say exactly what is the normalized number. I'll wrap up by saying that if you look into next year, our plan is to maintain our gross margin.

Speaker #1: But that's a that's a lot to say that when we get to the end of the year, we've balanced that out. And I think if you looked at a lot of the one-times, there are offsets for those one-times.

Speaker #1: So difficult to say exactly what is the normalized number, but I'll wrap up, by saying that if you looked into next year, our plan is to maintain our gross margin.

Speaker #2: Thank you. Next question. Today is coming from Matthew Balsam, JP Morgan. Your line is now live.

Conference Specialist: Thank you. Next question today is coming from Matthew Robert Boss from JPMorgan. Your line is now live.

Speaker #3: Great. Thanks. So I have a couple of questions. Mike, maybe first on the sequential acceleration and same-store sales. Where are you seeing the largest gains by income demographic, if you broke it down? Second, on the initial pricing actions?

David Brown: Great, thanks. I have a couple. Mike, maybe first on the sequential acceleration in same-store sales. Where are you seeing the largest gains by income demographic if you broke it down? Second, on the initial pricing actions, are there any categories where you've seen material pushback? Last, any change in comps so far in the third quarter relative to the second quarter performance or just how best to think about third quarter versus fourth quarter comps?

Speaker #3: Are there any categories where you've seen material pushback? And then, any change in comps so far in the third quarter relative to the second quarter performance, or just how best to think about third quarter versus fourth quarter comps?

Speaker #1: Yeah. In terms of the sequential acceleration, when we started and we had our call and we were one period in, you were kind of done with the holidays and the events.

Robert LaFleur: Yeah, in terms of the sequential acceleration, when we started and we had our call and we were one period in, you were kind of done with the holidays and the events. We looked out and Q2, I always say periods five, six, and seven. Q2 and the start of Q3 are the toughest times for Dollar Tree because you don't have those big drivers, the real reasons people go to Dollar Tree. Yet in Q2, we saw very strong performance, balanced ticket and traffic in those comps. In terms of the drivers, where they come from, from income cohorts, yes, we saw the strongest performance from the higher income. What was interesting was we still saw very strong performance from our lower income customer.

Speaker #1: And so we looked out and Q2, I always say periods five, six, and seven. So Q2 and the start to Q3, are the toughest times for DOLLAR TREE because you don't have those big drivers.

Speaker #1: The real reasons people go to DOLLAR TREE. And yet, in Q2, we saw very strong performance, balanced ticket and traffic, in those comps. And in terms of the drivers, where they come from, from income cohorts, yes, we saw the strongest performance from the higher income, but what was interesting was we still saw very strong performance, from our lower income customer, so really the the pack sizes that we have, the ability to help them kind of stretch their budget, and make it to that next paycheck, we saw that all strong.

Robert LaFleur: Really the pack sizes that we have, the ability to help them kind of stretch their budget and make it to that next paycheck, we saw that all strong. In terms, Matt, of how the Q3 started, I mean, we raised our guidance for the full year to 4% to 6%. P7, again, doesn't have those big holidays. You start to get the back-to-school in it towards the end of it. We're within that range, albeit we are at the lower end of that range, but we're within that range and feel confident about looking out on the year and raising guidance for the full year on the top line.

Speaker #1: in terms you know, Matt, of how the Q3 started, I mean, we raised our guidance for the full year to to four to six percent.

Speaker #1: P7, again, doesn't have those big holidays. You start to get the the back-to-school in it. towards the end of it. we're within that range.

Speaker #1: albeit we are at the lower end of that range, but we're within that range and feel confident about, looking out on the year and and raising guidance, for the full year on the top line.

Speaker #2: Thank you. Next question is coming from Chuck Roth from Gordon Haskell. Your line is now live.

Conference Specialist: Thank you. Next question is coming from Charles P. Grom from Gordon Haskett. Your line is now live.

Speaker #4: Hey. Thanks. Good morning. you know, as you guys gain more experience with multi-price, how is the buying team evolved in its purchasing decisions? How how are you handling incremental markdowns with multi-price as we move forward?

Michael Creedon: Hey, thanks. Good morning. As you guys gain more experience with multi-price, how has the buying team evolved in its purchasing decisions? How are you handling incremental markdowns with multi-price as we move forward? Can you help us frame out where you are on the journey of moving higher on the $1.25 price point to $1.50, $1.75, $2 across the fleet?

Speaker #4: And then can you help us frame out where you are on the journey, moving higher on the $1.25 price point to $1.50, $1.75, and $2 across the fleet?

Speaker #1: Yeah. So first of all, our our merchant team is is incredible. the the amount of complexity that exists for them in a highly volatile environment, if you if you look at our five levers, and you go out and you say, "Okay.

Robert LaFleur: Yeah. First of all, our merchant team is incredible. The amount of complexity that exists for them in a highly volatile environment. If you look at our five levers and you go out and you say, "Okay, 30% for China, 10% for the rest of the world," you start negotiating with our suppliers. You look at country-of-origin. They're respecting product. There are some SKUs they're just not going to carry anymore. They're deciding what could go into the expanded assortment and have a higher price. Halfway through the quarter, you're doing that and all of a sudden in India or Vietnam or somebody goes to not 10%, but in India's case, 50%. I give our merchants just a ton of credit for the work that they're doing. It's remarkable. Not just our merchants, our global sourcing team, how our supply chain then handles that.

Speaker #1: The 30% for China, 10% for the rest of the world. You start negotiating with our suppliers. You look at the country of origin and their respective products.

Speaker #1: There's some skews. They're just not going to carry anymore. And then they're deciding what could go into the expanded assortment. and have a and have a higher price.

Speaker #1: And then, you know, halfway through the quarter, you're doing that. And all of a sudden, in India or Vietnam, or somebody goes to—not 10%, but in India's case, 50%.

Speaker #1: I want to give our merchants a ton of credit for the work that they're doing. It's remarkable. And not just our merchants, but our global sourcing team and how our supply chain then handles that.

Speaker #1: And then, of course, in-store, you know, they're at the end of that whipsaw, having to adjust. So the teams have done a great job in navigating that.

Robert LaFleur: Of course, in store, they're at the end of that whipsaw having to adjust. The teams have done a great job in navigating that. What I do like, you never want this chaos, but I love the agility that it's created at the company. Every one of our teams that I've mentioned is far more nimble now than they ever have been in really looking at ways to have that lowest landed cost so that we can deliver a great value for our customer. What does it look like going forward? The $1.25 is still the $1.25. I mentioned that 85% of the store is still $2 or less. That's what we are. That's who we are. We also believe there's an opportunity to expand the assortment and provide value, that quick, convenient shop.

Speaker #1: And what I do like, you never want this chaos, but I love the agility that it's created at the company. every one of our teams that I've mentioned, is far more nimble now than they ever have been.

Speaker #1: And really looking at ways to have that lowest landed cost so that we can deliver a great value for our customer. and so what does it look like going forward?

Speaker #1: you know, the DOLLAR 25 is still the DOLLAR 25. I mentioned that 85% of the store is still $2 or less. that's what we are.

Speaker #1: That's who we are. but we also believe there's an opportunity to expand the assortment. And provide value, that quick, convenient shop. And then with that expanded assortment, really double down on that thrill of the hunt.

Robert LaFleur: With that expanded assortment, really double down on that thrill of the hunt discovery that you come into Dollar Tree, you're not exactly sure what you needed. By the end of the first aisle, there's a basket there because you got more than you thought you would. That's the Dollar Tree magic. That hasn't changed. That will not change. That's who we are. That's what we'll continue to be.

Speaker #1: Discovery: When you come into Dollar Tree, you're not exactly sure what you need. And by the end of the first aisle, there's a basket there because you've got more than you thought you would.

Speaker #1: That's the Dollar Tree magic. That hasn't changed. That will not change. And that's who we are. So that's what we'll continue to be.

Speaker #2: Thank you. Next question. Today is coming from Represh Preet from Oppenheimer. Your line is now live.

Conference Specialist: Thank you. Our next question today is coming from Rupesh Dhinoj Parikh from Oppenheimer. Your line is now live.

Speaker #3: Good Good morning. And thanks for taking my questions. So I two two on just on pricing. just given the current tariff backdrop, what any do you think we are in terms of enacted pricing increases?

Stewart Glendinning: Good morning and thanks for taking my questions. Two on just on pricing. Given the current tariff backdrop, what inning do you think we are in terms of enacted pricing increases? If you look at the increase that you're already taking and plan on taking, how do you feel about your price gaps?

Speaker #3: And then if you look at the increase that you've already taken and plan on taking, just how do you feel about your price gaps?

Speaker #1: So in terms of what inning we're in, it's it's a little different for us because of the way the the holidays work. So we've taken our price that we are are going to take.

Robert LaFleur: In terms of what inning we're in, it's a little different for us because of the way the holidays work. We've taken our price that we are going to take. In that respect, I'll give you the closer's not in yet, but the setup man's in. When you look out on Q3 and Q4 as a new holiday comes in and replenishment comes in, there is that opportunity on restickering, resignage. We've taken the price we're going to take. Our team knows what they're doing. Late inning on that, setup man's in. We still have work to do because every time you get replenished from the DC or you take something out of a pack away, you are faced with that restickering and resignage. In terms of how it's been received, very well. We really look at what our customer tells us every day and their traffic.

Speaker #1: So in that respect, I'll I'll give you the the, you know, the closer's not in yet, but but the setup man's in. and so but when you look out on Q3 and Q4, as a new holiday comes in and replenishment comes in, there is there is that opportunity on restickering, resignage.

Speaker #1: So we've taken the price we're going to take. Our team knows what they're doing. late inning on that, setup man's in. and we still have work to do because every time you get replenished from the DC or you take something out of a a pack away, you are faced with that restickering and resignage.

Speaker #1: In terms of how it's been received, you know, very well. We really look at what our customers tell us every day, and their traffic—they vote with their feet.

Robert LaFleur: They vote with their feet and their ticket. They vote with their wallet. We like what we see from them.

Speaker #1: And their ticket, they vote with their wallet. And we like what we see from them.

Speaker #2: Thank you. Next question. Today is coming from John Heimbachel from Guggenheim Partners. Your line is now live.

Conference Specialist: Thank you. Next question today is coming from John Edward Heinbockel from Guggenheim Partners. Your line is now live.

Speaker #5: Hey, Mike. Two questions, somewhat related. When you think about the basket, and consumable and discretionary items in the baskets, I mean, how much are you getting, a significant, very high percentage of baskets with both?

Michael Creedon: Hey, Mike. Two questions somewhat related. When you think about the basket and consumable and discretionary items in the basket, how much are you getting a significant, very high percentage of baskets with both? How do you think about, you know, sort of chicken and the egg? Does treasure hunt drive traffic for consumable? Does consumable repetition drive traffic for discretionary? Lastly, we've talked in the past about this zone pricing. It sounds like you're probably, it just sounds to me like you're less interested in that today maybe than you were. Is that just because of the macro backdrop and timing?

Speaker #5: And then, you know, how do you think about, you know, sort of chicken and the egg? Does treasure hunt drive traffic for consumable? Does consumable, repetition drive traffic for discretionary?

Speaker #5: And then and then lastly, you know, we've talked in the past about, this, zone pricing. And it's and it sounds like, you know, you're probably it just sounds to me like you're less interested in that today maybe than you were.

Speaker #5: Is that just because of the macro backdrop and timing?

Speaker #1: Yeah. That's great questions, John. The first, the basket, it really is both in terms of the traffic drivers. Consumables and maybe there's a bit nuanced by income cohort.

Robert LaFleur: Yeah, great questions, John. The first, the basket, it really is both in terms of the traffic drivers. Consumables, and maybe there's a bit nuanced by income cohort. If I look at our traditional lower income customer, they're driven by kind of everyday essentials. They're driven by pack sizes. They're trying to stretch a budget between paychecks. They're coming in for that purpose and finding, you know, the back-to-school find that just wows them. That $5 backpack that saves them a trip to a large mass merchant at a better price. You have that thrill of the hunt discovery customer that tends to skew more higher income. They're coming into our stores. They're targeting the seasons, the holiday, the back-to-school, all that. They're saying, you know, wow, I can't get over that I can get, you know, Dixie plates for $3. I mean, it's just incredible.

Speaker #1: So, if I look at our traditional, lower-income customer, they're driven by kind of everyday essentials. They're driven by pack sizes. They're trying to stretch a budget between paychecks.

Speaker #1: So they're coming in for that purpose and finding, you know, the back-to-school find that just wows them. That $5 backpack saves them a trip to a large mass merchant at a better price.

Speaker #1: And then you have that thrill of the hunt discovery customer that tends to skew more high income. They're coming into our stores, targeting the seasons, the holidays, the back-to-school, all that.

Speaker #1: And they're saying, "You know, wow. I can't get over that I can get, you know, Dixie plates for $3." I mean, it's just incredible.

Speaker #1: They didn't they didn't know they could find that. and so really, it's a very complementary, ticket and traffic across all income cohorts. And then zone pricing, it is not that we've lost our interest in this.

Robert LaFleur: They didn't know they could find that. It is a very complimentary ticket and traffic across all income cohorts. Zone pricing, it is not that we've lost our interest in this. Think of it as priorities. If it were something we really wanted to test at the beginning of the year, when we were faced with the inflationary cost environment, the tariffs, etc., we really had to pivot to our tariff mitigation strategy. That has put zone pricing a little bit down the priority, but it's still something we want to look at. We're all about delivering an incredible relative value. As you can imagine, that relative value in California or New York may be different than that relative value in other parts of the country. Maybe a little down the priority, but still something that we will lean into at some point.

Speaker #1: Think of it as priorities. if it were something we really wanted to test at the beginning of the year, when we were faced with the inflationary cost environment, the tariffs, etc., we really had to pivot, to our tariff mitigation strategy.

Speaker #1: And that has put zone pricing a little bit down the priority, but it's still something we want to look at. We're all about delivering an incredible relative value.

Speaker #1: And as you can imagine, that relative value in California or New York may be different than that relative value in other parts of the country.

Speaker #1: So, maybe a little down the priority, but still something that, we will lean into at some point.

Speaker #2: Thank you. Next question is coming from Seth Sigman from Barclays. Your line is now live.

Conference Specialist: Thank you. Next question is coming from Seth Ian Sigman from Barclays. Your line is now live.

Speaker #4: Hey, good morning, everyone. Thanks for taking the question. I wanted to follow up on the performance across price points. Is there any way to quantify the overall lift to comps from that new multi-price point product?

Michael Lasser: Hey, good morning everyone. Thanks for taking the question. I wanted to follow up on the performance across price points. Is there any way to quantify the overall lift to comps from that new multi-price point product? Specifically on the $1.25, Mike, to your point, obviously that's still a bulk of the product, but with more variations on that now, I'm just curious, how is the consumer responding to that? How is that part of the assortment performing? Thanks so much.

Speaker #4: And then specifically on the 125, Mike, to your point, obviously, that's still a bulk of the product. But with more variations on that now, I'm just curious: how is the consumer responding to that?

Speaker #4: How is that part of the assortment performing? Thanks so much.

Speaker #1: Thanks, Seth. We really see strong performance across the entire envelope of offerings. We look at the balance that we're seeing in the basket; we look at the discretionary and the consumables.

Robert LaFleur: Thanks, Seth. We really see across the entire envelope of offering strong performance. We look at the balance that we're seeing in the basket. We look at the discretionary and the consumables. We look across all different price points. Our customer continues to find value, and their basket is fairly balanced. We do see a higher basket in multi-price. It does skew higher, and it's got a good item flow in it. There is no real breakout of how the different pieces determining their price point perform. We don't really see that. Across the entire basket, we see strong performance.

Speaker #1: We look across all different price points, and really, our customer continues to find value. Their basket is fairly balanced, and we do see a higher basket in multi-price.

Speaker #1: It does skew higher, but there's, you know, it's got a good item flow in it. However, there's no real breakout of how the different pieces determining their price point perform.

Speaker #1: We don't really see that. It's across the entire basket. We see strong performance.

Speaker #4: Yeah. Maybe one other thing just to add, Mike. And that is to say that actually, if you look at the departments where we have had a change in merchandising strategy, i.e., the assortment's gotten broader.

Stewart Glendinning: Yeah, maybe one other thing just to add, Mike, and that is to say that actually if you looked at the departments where we have had a change in merchandising strategy, i.e., the assortment's gotten broader, we have increased price points. There's very clear data to show that those departments are performing well and use hardware as an example of that. You know, we had $1.25 hammers before. We couldn't sell them. We've got $5 hammers now. We can't keep those in stock. Think about those kinds of items as just creating more interest for consumers in a way that is very positive to the shopping experience and also to our revenue line.

Speaker #4: We have increased price points. There's very clear data to show that those departments are performing well, and use hardware as an example of that.

Speaker #4: You know, we had DOLLAR 25 hammers before. We couldn't sell them. We've got $5 hammers now. We can't keep those in stock. And so think about those kinds of items as just creating more interest for consumers in a way that is very positive to the shopping experience and also to to our our revenue line.

Speaker #2: Our next question comes from Scott Ciccarelli from Choice. Your line is now live.

Conference Specialist: Our next question today is coming from Scot Ciccarelli from Choice. Your line is now live.

Speaker #3: Good morning, guys. Scott Ciccarelli. You seem to be making increasingly cautious comments on the consumer. Can you provide more color or maybe some examples of what you're seeing at the consumer level that's making it more challenging and volatile than before?

Stewart Glendinning: Good morning, guys. Scot Ciccarelli. You seem to be making increasingly cautious comments on the consumer. Can you provide more color or maybe some examples of what you're seeing at the consumer level that's making it more challenging and volatile than before? Just a housekeeping item, hopefully. What's driving the change to your TSA outlook? Thanks.

Speaker #3: And then just a housekeeping item, hopefully, what's driving the change to your TSA outlook? Thanks.

Speaker #1: The the the commentary around the consumer, you know, I've been doing this a long time. I I really look to say that there's a lot of unknown right now.

Robert LaFleur: The commentary around the consumer, you know, I've been doing this a long time. I really look to say that there's a lot of unknown right now. If you look at how the world's developing, I mean, yes, it's been very strong so far. You're coming up on a time, you know, back-to-school time. You're coming up on holidays and seasons. We've started the year. We had incredible holidays. We'd like to think that'll continue. We're still cautious because if you look past over the last four or five years, you know, prices have increased significantly across the entire retail landscape. Things cost more for families. As a result of that, we're cautious. We still don't know the full impact of tariffs. We still don't know exactly. Take China. You know, we won't know till November where it ends up. Is it 30%? Is it something different?

Speaker #1: If you look at how the world's been developing, I mean, yes, it's been very strong so far. But you're coming up on a time, you know, back-to-school time.

Speaker #1: You're you're coming up on holidays and seasons. And we've started the we had incredible holidays. we'd like to think that'll continue. But we're we're still cautious because if you look past over the last four or five years, you know, prices have increased significantly across the entire retail landscape.

Speaker #1: things cost more for families. And so as a result of that, we're cautious. We still don't know the full impact of tariffs. we still don't know exactly.

Speaker #1: Take China, you know, we won't know till November where it ends up. Is it 30%? Is it is it something different? it's it's a very volatile time slot.

Robert LaFleur: It's a very volatile time, Scott. That just leads us to be a bit cautious. We love the traffic we're seeing, the ticket. I mean, that discretionary comp in Q2 is just absolutely incredible. We're very pleased with how our business is responding. If you look at the lower-income consumer and you look at the challenges that they're facing every day just across their entire life and in terms of what things cost, it's just a cause for caution on our part. We think it's the right posture. Let me finish by saying, no matter where this goes and where the consumer strength lands, we're very confident in the Dollar Tree solution to the problem. We think we are attractive to lower income. We think we're attractive to middle. Our thrill of the hunt just scores well with higher income.

Speaker #1: And so that just leads us, to be a bit cautious. We love the traffic we're seeing, the ticket, I mean, that discretionary comp at Q2 just absolutely incredible.

Speaker #1: so we're very pleased with how our businesses responding. but if you look at the lower income consumer, and you look at, you know, the challenges that they're facing every day, just across their entire life, and in terms of what things cost, it's just it's a cause for for caution on our part.

Speaker #1: We think it's the right posture. But let me let me finish by saying no matter where this goes, and where the consumer strength lands, we're very confident in the DOLLAR TREE, you know, solution to the problem.

Speaker #1: We we think we are attractive to lower income. We think we're attractive to middle. And then, our thrill of the hunt just scores well with higher income.

Speaker #1: So, I really do think we have the answer. for DOLLAR TREE, but as you look out on that broader, landscape, it's just it's a cautious environment we're in.

Robert LaFleur: I really do think we have the answer for Dollar Tree. As you look out on that broader landscape, it's just a cautious environment we're in.

Speaker #4: Yeah, I think that as we get through this next quarter, we'll have a much better view of some of the tariff items and what's going on with the consumer.

Stewart Glendinning: Yeah, I think also we'll get through this next quarter. We'll have a much better view to some of the tariff items, to what's going on with the consumer. The bottom line is, I mean, we've delivered a terrific comp this year. Even if you look at the back half of the year, no matter where we end up, it's a very, very powerful outcome given the range we've put out there. Let me pick up on the TSA item for a second. You raised TSA with the expectation that TSA is slightly lower. I mean, the TSA income is something that's negotiated ultimately with the buyer. In this case, the buyer decided they needed fewer services than we thought they would need. The good news is we gave guidance relative to our expectations for SG&A. We're going to hit that guidance for this year.

Speaker #4: And the bottom line is, I mean, we've delivered a terrific comp this year. And even if you look at the back half of the year, no matter where we end up, it's a very, very powerful it's a powerful outcome, given the range we've, we've put out there.

Speaker #4: Let me pick up on the TSA item for a second. You raised TSA, with the expectation that TSA is slightly lower. I mean, the TSA income is something that's negotiated, ultimately, with a buyer.

Speaker #4: In this case, the buyer decided they needed fewer services than we thought they would need. But the good news is we provided guidance relative to our expectations for SG&A.

Speaker #4: We're going to hit that guidance for this year. So despite the fact that the TSA will come in a little bit light, we've got other cost savings that, that we've deployed for for, for this year that, that will bring us in at the number.

Stewart Glendinning: Despite the fact that the TSA will come in a little bit light, we've got other cost savings that we've deployed for this year that will bring us in at the number. I think if you look to 2026, that leaves us with a gap in 2026. We've got plenty of runway now between now and then to solve for the SG&A in 2026. We're really pleased actually with the way that that's worked out.

Speaker #4: I think if you look to '26, that leaves us with a with a with a gap in '26. but we've got plenty of runway now between between now and then, to solve for the SG&A, in 2026.

Speaker #4: So, we're really pleased, actually, with the way that that's worked out.

Speaker #2: Thank you. Next question comes from Jiha Mao from Bernstein. Your line is now live.

Conference Specialist: Thank you. Next question today is coming from Zhihan Ma from Bernstein. Your line is now live.

Speaker #5: Great, thank you. So my question is on the store side of things with Q2 performance clearly coming in ahead of your expectations. How do you feel about the service level and the in-stock levels in store? Will you need additional investments to sustain the momentum into the back half of the year?

Michael Lasser: Great, thank you. My question is on the store side of things with Q2 performance clearly coming in ahead of your expectations. How do you feel about the service level, the in-stock levels in store? Will you need additional investments to sustain the momentum into the back half of the year? Thank you.

Speaker #5: Thank you.

Speaker #1: I'm I'm very pleased with our stores. It's certainly a journey. but, Jossie Conrad and her team have have done a a really good job on our we call it our road to gold, which is grand opening, look daily.

Robert LaFleur: I'm very pleased with our stores. It's certainly a journey. Jocie Conrad and her team have done a really good job on what we call our road to gold, which is grand opening look daily. As we score our stores and look at their relative performance, the improvements, the more stores scoring higher, the customer lens, what they see when they walk in the door, we continue to be pleased with that progress. She would tell you I have a long way to go. She's got a high bar for the team, and so do I. We're very pleased. Roxanne Wang, who runs our supply chain, would tell you that this is the best position our DCs have been in in recent memory. This is our peak as we flow product to the stores for the upcoming holiday season.

Speaker #1: And as we score our stores and look at their relative performance, the improvements, the more stores scoring higher, the customer lends what they see when they walk in the door.

Speaker #1: you know, we continue to be pleased with that progress. She would tell you I have a long way to go. she's got a high bar for for the team.

Speaker #1: And so do I. But we're very pleased. And then Roxanne Wang, who runs our supply chain, she would tell you that this is the best position our DCs have been in in recent memory.

Speaker #1: this is our peak. as we flow product to the stores, for the upcoming holiday season, and the the position our DCs are in, and the corresponding position on the shelf, is is very strong.

Robert LaFleur: The position our DCs are in and the corresponding position on the shelf is very strong and, in fact, the best we've seen in a number of years. The customer is going to walk in that door. They're going to find stocked shelves. They're going to find great value, as they always do. We're confident that they're seeing an improving shopping experience. We've started talking to our customer a lot more through customer insights, some third parties we've engaged, surveys, receipt-based surveys. We like what our customer is telling us.

Speaker #1: And in fact, the the best we've seen in a in a number of years. So the customer is going to walk in that door.

Speaker #1: They're going to find stock shelves. they're going to find great value as they always do. and we're confident that they're seeing an improving shopping experience.

Speaker #1: We've started talking to our customer a lot more through customer insights, some third parties we've engaged. Surveys, receipt-based surveys. and, we like what our customer is telling us.

Speaker #2: Thank you. Next question is coming from Peter Keith from Piper Sandler. Your line is now live.

Conference Specialist: Thank you. Next question is coming from Peter Jacob Keith from Piper Sandler. Your line is now live.

Speaker #3: Hey. thank you. Good morning. Mike, I just want to follow up on the Uber Eats, with a just a couple of questions on that topic.

Michael Lasser: Hey, thank you. Good morning. Mike, I just want to follow up on the Uber Eats with just a couple of questions on that topic. Is that going out to all stores? Is there any maybe quantifiable lift that you've seen in early tests? Finally, are you a standalone offering or is it more part of their multi-store initiative?

Speaker #3: So is that going out to all stores? and is there any maybe quantifiable list that you've seen in in early tests? And and finally, are you a standalone offering or is it more part of their, multi-store initiative?

Speaker #1: Yeah. As you probably heard in my comments, I'm very excited about this this Uber Eats. You know, when you look at kind of digital e-comm, DOLLAR TREE is really an infant when it comes to digital and e-comm.

Robert LaFleur: Yeah, as you probably heard in my comments, I'm very excited about this Uber Eats. You know, when you look at kind of digital e-comm, Dollar Tree is really an infant when it comes to digital and e-comm. It is just not something we've ever really done. It's not been a focus area. When I started in this journey as CEO, there were a couple of things I focused on. One of them was I want to talk to my customer more in terms of customer insights. I want to look at opportunity to meet our customers where they are. Uber Eats is a perfect opportunity to do this. 25 million customers that they access. For us, it's a customer that is very incremental. When we look at the kind of age of the demographic, it skews younger.

Speaker #1: It is just not something we've ever really done. It's not been a focus area. And, you know, when I started in this journey as CEO, there were a couple of things I focused on.

Speaker #1: One of them was that I want to talk to my customers more in terms of customer insights. I want to look at the opportunity to meet our customers where they are.

Speaker #1: Uber Eats is a perfect opportunity to do this. 25 million customers that they access. And for us, it's a customer that is very incremental.

Speaker #1: when we look at the the the kind of age of the demographic, it skews younger. and they had not been or heard of DOLLAR TREE to the vast majority of them.

Robert LaFleur: They had not been or heard of Dollar Tree to the vast majority of them. We're really excited about that. It'll go to, it's not quite all the stores, but you know, it's 8,500 stores. Some of that is just, you've got lease restrictions. There's reasons it won't get to 9,148 or whatever we're at now. It's basically all the stores. It's large. We haven't even started the marketing for it, the kind of grand opening. It had a soft opening. We're pretty floored at the numbers coming in and the number of orders. They're literally just finding us in their app, not through anything we're doing. The volume flow is really exciting. Yeah, I think it's a great offering to our customer. It really accents convenience. We say value, convenience, and discovery. Convenience and Uber Eats just are synonymous.

Speaker #1: So we're really excited about that. It'll go to—it's not quite all the stores, but, you know, it's 8,500 stores. Some of that is just you've got lease restrictions.

Speaker #1: There are reasons it won't get to 91, 48, or whatever we're at now. But it's basically all the stores. It's large. And then we haven't even started the marketing for it, the kind of grand opening.

Speaker #1: It had a a soft opening. And we're we're we're pretty floored at the, at the numbers coming in and the number of orders. So they're literally just finding us in their app.

Speaker #1: not through anything we're doing. And the volume flow is is really exciting. So, yeah, I think I think it's a great offering to our customer.

Speaker #1: It really accents convenience. We say value, convenience, and discovery—convenience and Uber Eats, just synonymous.

Speaker #2: Thank you. Our next question is coming from Kelly Banya from BMO Capital Markets. Your line is now live.

Conference Specialist: Thank you. Our next question is coming from Kelly Ann Bania from BMO Capital Markets. Your line is now live.

Speaker #6: Hi. Thanks for, fitting fitting us in. Just wanted to ask about, gross margin, so your outlook now for 50 basis points of expansion. Can you just walk through some of the the, the key factors that are driving that?

Michael Lasser: Hi, thanks for fitting this in. Just wanted to ask about gross margins, so your outlook now for 50 basis points of expansion. Can you just walk through some of the key factors that are driving that? It is a little bit lower than your prior outlook. I'm guessing maybe that's just the incremental tariffs. Can you just parse out the impact from pricing actions you've taken, other factors such as freight, or any of the other needle movers on the gross margin line this year?

Speaker #6: It is a little bit lower than your prior outlook. I'm guessing maybe that's just the incremental tariffs. But can you just parse out the impact from pricing actions you've taken, other factors such as freight, or any of the other needle movers on the gross margin line this year?

Speaker #4: Yeah. Happy to pick up on that. As I mentioned in my commentary earlier, there are a lot of moving parts here, especially as it relates to the freight and how that's running through.

Stewart Glendinning: Yeah, happy to pick up on that. As I mentioned in my commentary earlier, there are a lot of moving parts here, especially as it relates to the freight and how that's running through. You also need to keep in mind my commentary around the accounting impacts of the revaluation of the inventory that's moving through. These things depend on the mix of goods that are sold, the rate of those goods being sold, etc. There is a small bit of movement there. I think if you look at other outstanding factors on the positive side, we continue to have a freight benefit, which we called out last quarter. In this quarter, we pointed to higher markdowns, which are offsetting in the other direction. I think those are the main factors.

Speaker #4: You also need to keep in mind my commentary around the accounting impacts of the revaluation of the inventory as that's moving through.

Speaker #4: These things are, you know, dependent on the mix of goods that are sold, the rate of those goods being sold, etc.

Speaker #4: So there's a small bit of movement there. I think if you look at other outstanding factors on the positive side, we continue to have a freight benefit, which we called out last quarter, and in this quarter, we pointed to higher markdowns, which are offsetting in the other direction.

Speaker #4: I think I think those are the those are the main factors. The broad picture I would take is that we are managing very, very closely here.

Stewart Glendinning: The broad picture I would take is that we are managing very, very closely here to maintain a strong gross margin. I think if you look back at our forecast, there was an expectation that you would see some costs from some of the one-off stuff, the tariffs, and as much mark-on benefit coming in that second quarter. Now with that shifting to the third and fourth quarter, that's also a little bit of a drag. The reason I made the commentary earlier about driving for maintenance of gross margin is that's how we're driving the business. That's what the five levers are intended to do. We will manage with tariffs and other costs in a way so as to keep the P&L whole.

Speaker #4: To maintain a strong gross margin. And I think if you look back at the sort of our forecast, there was there was sort of an expectation that you would see some costs from some of the one-off stuff, the tariffs and, and not as much mark-on benefit coming in that second quarter.

Speaker #4: Now that we are shifting to the third and fourth quarters, that's also a bit of a drag. The reason I made the commentary earlier about driving for maintenance of gross margin is because that's how we are driving the business.

Speaker #4: That's what the five levers are intended to do. And we'll manage with with with tariffs and other costs, in a way, so as to keep the P&L whole.

Speaker #2: Thank you. Our final question. Today is coming from Michael Montani from Evercore ISI. Your line is now live.

Conference Specialist: Thank you. Our final question today is coming from Michael Montani from Evercore ISI. Your line is now live.

Speaker #7: yes. Hi. thanks for taking the question. one thing I wanted to clarify was just, last quarter we had talked about, I think, 30 to 35 cents of impact, from family dollar in the first half of the year.

Michael Creedon: Yes, hi. Thanks for taking the question. One thing I wanted to clarify was just last quarter we had talked about, I think, $0.30 to $0.35 of impact from Family Dollar in the first half of the year. Can you just share where that ended up coming out?

Speaker #7: Did that can you just share where that ended up, coming out?

Speaker #4: I think, you might be referring to the impact of, of TSA benefit. we were expecting about, 95 million dollars in the back half of the year.

Stewart Glendinning: I think you might be referring to the impact of TSA benefit. We were expecting about $95 million in the back half of the year. That would be that sort of $0.30 you're talking about. I would figure just go back to the question I answered earlier, which is the TSA is coming in a little bit lower than expected. We gave guidance $55 to $60 million for the year. I think, you know, sort of $0.20. We've got other savings that are coming through in stock compensations and payroll that are helping us to offset that. Looking forward to 2026, we had a similar amount estimated for that year. We will have a little bit of a shortfall because of the new estimates for the TSAs. We have plenty of runway between now and next year to work on the gap closing items to solve for that.

Speaker #4: So that'd be that that sort of, 30, 30 cents you're talking about. I'd say go just go back to the question I answered earlier, which is the TSA is coming in a little bit a little bit lower.

Speaker #4: Then, expected, we gave guidance of $55 to $60 million for the year. So I think, you know, sort of $0.20. But we've got other savings that are coming through in stock compensation and payroll that are helping us to offset that.

Speaker #4: And then looking forward to 2020, '26, we had a similar amount of benefit estimated for that year. And we'll have a little bit of a shortfall because of the, the the new estimates for the TSAs.

Speaker #4: But we have plenty of runway between now and next year. To work on the on the gap closing items to solve for that.

Speaker #2: Thank you. We appreciate it. Our question and answer session. I'd like to turn the floor back over for any further closing comments.

Conference Specialist: Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over for any further closing comments.

Speaker #1: Thanks, everybody, for the call. have a great day.

Robert LaFleur: Thanks, everybody, for the call. Have a great day.

Conference Specialist: Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.