Dollar Tree (DLTR) Q1 2026 Earnings Transcript

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DATE

Thursday, May 28, 2026 at 8 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Michael Creedon
• Chief Financial Officer — Stewart Glendinning
• Director of Investor Relations — Daniel Delrosario

TAKEAWAYS

• Net Sales -- $5 billion, representing a 7.2% increase driven by a 3.5% comparable store sales gain and a 3.7% contribution from net new store growth.
• Comparable Store Sales -- Increased 3.5%, with a 4.5% rise in average ticket offsetting a 1% decline in traffic.
• Average Ticket -- Grew 4.5%, reflecting expanded multi-price assortment and evolution in merchandise offerings.
• Traffic -- Down 1%, with a sequential 20 basis point improvement from the previous quarter; 200 basis point acceleration on a 2-year basis compared to Q4.
• Category Performance -- Consumable sales rose 3.2%, while discretionary grew 3.9%, driven by strength in toys and personal care.
• Gross Margin -- Expanded 120 basis points, driven by higher merchandise margin, freight favorability, and lower shrink, partially offset by higher tariffs and markdowns.
• Adjusted Operating Margin -- Increased 110 basis points to 9.5%.
• Adjusted Operating Income -- Rose 22% year over year.
• Adjusted Diluted EPS -- Grew 38% to $1.74, exceeding the high end of management’s outlook range.
• Inventory -- Declined 9% compared to the prior year, resulting in a favorable inventory to sales spread as sales increased 7.2%.
• Cash and Capital Allocation -- Ended the quarter with $1 billion in cash; generated $644 million in cash from operations and $392 million in free cash flow; repurchased 5.5 million shares for $595 million with an additional $98 million bought after quarter-end.
• Share Count Reduction -- Reduced outstanding share count by approximately 8% over the past 12 months, returning $1.7 billion to shareholders.
• 2026 Full-Year Outlook -- Net sales expected between $20.5 billion and $20.7 billion with comparable store sales growth of 3%-4%; adjusted diluted EPS forecasted at $6.70-$7.10 based on a share count of 194 million.
• Q2 Guidance -- Net sales projected at $4.8 billion-$4.9 billion, comparable store sales growth of 2.5%-3.5%, and adjusted diluted EPS of $1.00-$1.15.
• Multi-Price Penetration -- Approximately 85% of sales mix remains at $2 and below, underscoring commitment to affordability.
• Shrink -- Year-over-year improvement due to enhanced execution of operating initiatives and product protection efforts.

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RISKS

• CFO Glendinning said, "there are several variables that remain dynamic today, including tariffs, fuel, freight and just some broader consumer pressure," explicitly citing cost and macro uncertainties as a reason for a cautious annual outlook.
• Management assumed "higher fuel prices last throughout the year," and higher transportation costs are expected to be absorbed by the business.
• No tariff refunds are assumed in either recent results or forward outlook due to timing and amount uncertainty.

SUMMARY

Management reported margin expansion and strong earnings, citing effective execution in merchandise, marketing, and store standards. Corporate SG&A including TSA income declined 15% and leveraged 70 basis points to 2.4% of total revenue, with a shift to consolidated SG&A reporting planned for fiscal 2027. Store standards improved, reducing the proportion of substandard stores from 42% to less than one-third of the fleet. Multi-price initiatives supported incremental growth, especially in everyday categories, and price changes affected less than 5% of the assortment. Inventory reduction was a conscious effort, supporting working capital efficiency and fresher assortments. Free cash flow supported shareholder returns, with the share count reduced by 8% through repurchases. Management confirmed that all income cohorts posted positive comps this quarter and noted expanding engagement by higher-income customers. Tariff assumptions remain prudent with no forecasted refunds, and fuel costs are expected to remain elevated throughout the year.

• Marketing strategy is shifting to more targeted, data-driven approaches, with the goal of increasing customer frequency and ROI.
• Pricing moves were limited, focused on recovering brands lost at lower price points; management stated, "less than 5%" of assortment was affected.
• SG&A growth remains a top focus, with management expecting leverage in the back half as prior pricing and restickering headwinds anniversary.
• Freight contract durations shifted toward shorter-term arrangements, allowing closer coupling with market rates.
• Helium supply remains tight, but Dollar Tree leveraged its scale to minimize impact during recent holidays.
• Management reaffirmed intent to reinvest potential tariff refunds in the business, with no such benefit baked into current guidance.

INDUSTRY GLOSSARY

• Shrink: Retail term referring to inventory loss from theft, damage, or administrative errors.
• TSA income: Transitional Service Agreement income, referring to payments received for services provided to divested segments post-sale.
• Multi-price: Dollar Tree's practice of offering merchandise at multiple price points above the legacy $1.25 threshold.
• Stickering/Restickering: The process of updating in-store price labels to reflect new price points following pricing changes.

Full Conference Call Transcript

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

For information on the risks and uncertainties that could affect our actual results, please see the Risk Factors, Business and Management's Discussion and Analysis of Financial Condition and Results of Operations section in our annual report on Form 10-K filed on March 16, 2026, our most recent press release and Form 8-K and other filings with the SEC. We caution against reliance on any forward-looking statements made today, and we disclaim any obligation to update any forward-looking statements, except as required by law. Also during this call, we will discuss certain non-GAAP financial measures.

Reconciliations of these non-GAAP items to the most directly comparable GAAP financial measures are provided in today's earnings release available on the IR section of our website. These non-GAAP measures are not intended to be a substitute for GAAP results. Unless otherwise stated, we will refer to our financial results on a non-GAAP basis. Additionally, unless otherwise stated, all discussions today refer to our results from continuing operations and all comparisons discussed today for the first quarter of fiscal 2026 are against the same period a year ago. Please note that a supplemental slide deck outlining selected operating metrics is available on the IR section of our website. Following our prepared remarks, Mike and Stewart will take your questions.

Please limit yourself to one question and one follow-up question. And with that, I'll turn the call over to Mike.

Michael Creedon: Thanks, Daniel. Good morning, everyone. At Dollar Tree, we continue to focus on executing our strategic plan, expand and modernize our assortment through multi-price, manage costs with agility, create a strong connection with our customer, open more new stores and improve the condition of our fleet and the in-store experience, all of which are supported by supply chain excellence and our more than 150,000 associates. At the same time, we recognize the consumer environment remains dynamic, especially for lower-income households navigating higher fuel costs and broader macro uncertainty. Customers are shopping thoughtfully and closer to need with a continued focus on affordability, convenience and trip efficiency.

Customers value the ability to shop nearby and quickly to stretch their budgets through smaller and more affordable pack sizes and to still find a compelling assortment and discovery throughout the store. Importantly, our model is built for environments like this. Our deep value and attractive opening price points not only enable us to best serve our core customer, they also position us to benefit from trade-in behavior as customers across multiple income cohorts become increasingly value focused. Against the backdrop of ongoing uncertainty around fuel costs and tariffs, we will continue to protect value while strengthening the quality and relevance of our assortment.

In this environment, our powerful combination of value, convenience and discovery continues to resonate with customers across all income levels and a wide range of shopping occasions. Our financial performance in the first quarter builds upon the strength of the prior quarter and validates our approach. Total sales increased 7.2%, while comparable sales rose 3.5%, driven by continued strength in ticket and traffic trends that improved in line with our expectations. Our focus and execution drove strong margins and Q1 adjusted earnings per share growth of 38% year-over-year to $1.74, exceeding the high end of our outlook range.

As expected, this year's earlier Easter timing created a natural comp headwind, and our core customer continues to buy much closer to need. Despite these dynamics, we delivered a good quarter. Our performance reflects the underlying momentum in the business and strong execution from our merchandise, store and supply chain teams. Our multi-price assortment continues to perform well and remains a meaningful growth driver. While Dollar Tree has historically and continues to feature prominently around the holidays and celebrations, we are increasingly leveraging that traffic and customer engagement to build greater relevance across everyday consumables and household categories throughout the year. Our merchant teams are focused on bringing the multi-price excitement of holiday to the everyday categories.

Increasingly at Dollar Tree, we've been saying, come for the holiday, stay for the everyday. Customers often enter the store for a seasonal need, particularly around holidays and celebrations and then engage more broadly across everyday categories once in the store. Our internal data continues to show that expanded multi-price assortment is supporting incremental strength in everyday categories like toys and beverages. Turning to the components of comp. Traffic declined 1% in the quarter, representing a 20 basis point sequential improvement from the fourth quarter. This improvement is consistent with our expectations.

On a 2-year basis, traffic trends improved about 200 basis points sequentially in the first quarter when compared to the Q4 2-year traffic stack, reflecting both continued normalization from the initial reaction to pricing resets and also encouraging customer response to our expanding assortment and value proposition. Ticket increased 4.5% in the quarter. Ticket growth reflects the continued evolution of our assortment, the expansion of multi-price and our ability to offer customers a broader range of value options across categories. We are seeing strength in areas such as home decor and household consumables where we have leaned into even higher quality, sharper price points and clearer value communication.

The expansion of multi-price continues to be a key enabler of that progress. It allows us to improve quality in core categories, introduce new items that were previously not viable at a single price point and create more compelling options across a wider range of purchase occasions. Additionally, it enables us to better align price points with product attributes, improving both clarity and value for the customer. At the same time, we remain disciplined in maintaining strong relative price competitiveness. Our opening price point remains a critical anchor for both the brand and the customer's perception of value.

Even as we expand assortment and choice above the entry price point, rigorous benchmarking of pricing and assortment against competitors has enabled us to maintain our position as a value leader. Importantly, approximately 85% of our sales mix remains at $2 and below, underscoring our continued commitment to affordability and everyday value. And as Dollar Tree celebrates its 40th anniversary this year, customers will also see the dollar price point featured in stores as we honor the heritage and foundation of the brand. Let's move on now and discuss profitability. Dollar Tree's margin profile is improving. We are making progress in areas that are within our control.

This dynamic contributes to stronger overall profitability and reinforces the trajectory we outlined coming into the year. Stewart will review the financial results in more detail later, but I would like to call out an area where our operating initiatives, in particular, our gold store standards and agile cost management focus are translating into positive financial outcomes. While it's still early days, we are starting to bend the curve on shrink. Shrink improved year-over-year as our strategies are gaining real traction. Initiatives we outlined at Investor Day, such as the nonnegotiable audit, along with continued teaching, coaching and training on shrink prevention are having a measurable impact.

In addition, we are seeing increasing benefits from our product protection efforts, which are helping to reduce loss on higher-risk items. In departments where we've tightened merchandising standards, improved product placement and applied more deliberate controls on an at-risk category, performance is holding up better and losses are coming down. We are also being more intentional in how we identify opportunity areas in stores, addressing them through focused training, stronger oversight and consistent operational discipline. Improved store standards and greater execution consistency across the fleet directly contribute to more stable performance at the store level. While this work is ongoing, early results continue to reinforce that disciplined, consistent execution in the field is driving meaningful improvement versus last year.

At Dollar Tree, we're focused on the areas within our control, and our gold store initiatives are contributing to our financial performance. Now let's talk about marketing, which is a new muscle for Dollar Tree and one that is becoming increasingly relevant as our assortment expands as our customer base increasingly includes more higher-income customers and as we seek to drive shopping frequency. Dollar Tree has one of the strongest unaided awareness levels in retail, and we are working to more fully leverage that strength. We have been building and scaling more advanced marketing capabilities, particularly around targeted and data-driven engagement. These efforts improve our understanding of customer behavior and how we communicate value across different customer groups.

They enable us to better segment our customer base and tailor messaging in a way that is more relevant. This includes how we communicate assortment, highlight key categories and support seasonal and everyday merchandising initiatives. The net result is better customer engagement and reinforcement of our value proposition. We are also improving how we measure the effectiveness of our marketing efforts, enabling us to refine our approach over time and ensure that we are investing in the most impactful channels and strategies and are capturing a return on our investment. It is about improving precision and delivering clear, relevant messaging that aligns with how customers are shopping our stores and engaging with our expanded assortment.

As these capabilities continue to evolve, they will play an increasingly important role in supporting overall performance and strengthening customer engagement. At Dollar Tree, everything starts with the customer, and we are spending more time listening to our customers and understanding how they shop in ways we never have before. Let's turn to traffic, which remains an important component of the overall model. The performance in Q1 was consistent with our expectations and directionally aligned with the traffic patterns we discussed last quarter following the pricing transition and restickering activity.

Our experience with breaking the dollar demonstrated that a major pricing reset at Dollar Tree results in a temporary shift in the balance between traffic and ticket, while overall comp performance remains healthy. Importantly, we continue to believe the current traffic response remains more muted and will normalize more quickly, reflecting the more targeted and strategic nature of the pricing actions taken over the past year. We remain highly focused on the needs of our customers and approach pricing thoughtfully, ensuring we continue to deliver the deep value they rely on while reinforcing our position as the value leader.

More broadly, traffic trends are behaving in a way that is aligned with how we would expect the business to perform given the evolution of assortment, multi-price strategy and customer behavior. When we look across the fleet, traffic performance varies in ways that are consistent with trade area, store characteristics and execution levels. That variation provides clear visibility into the underlying drivers of traffic performance and helps inform how we continue to operate and prioritize across the business. Importantly, it also reinforces that the levers we are focused on, execution, assortment and overall store standards are directly relevant to how the business performs.

Against a still uncertain macro backdrop, we are seeing customers remain highly value focused, intentional in how they shop and shopping closer to need. While the external environment remains dynamic, including ongoing variability in fuel prices and tariff-related uncertainty, we believe our value positioning continues to resonate with customers navigating this current inflationary environment. As we anniversary last year's pricing actions in the second half, traffic should also benefit from the operational and merchandising progress already underway across the business, and our focus remains on reinforcing clear value in the assortment, targeted customer engagement and better in-store execution.

First, we'll continue leaning into the areas where customers are responding positively, particularly multi-price expansion in everyday categories and a compelling opening price point assortment. Second, as I just discussed, we are continuing to scale our marketing capabilities where targeted outreach is driving incremental trips and a strong ROI. Third, on the operations side, we're focused on making stores easier to shop, ensuring consistent cashier coverage, continuing to address underperforming stores with tighter field accountability and reinforcing our gold standards across the fleet to improve execution, store conditions and the overall customer experience. Fourth, we'll continue improving the experience through disciplined store refreshes and renovations focused on enhancing productivity and the customer experience.

As our founders often said, when we operate clean, bright and inviting stores, our customers win and Dollar Tree wins. Finally, because our model enables us to help our customers better navigate uncertain times, Dollar Tree has, in the past, become more relevant in tougher economic environments. This may prove an added tailwind over the quarters ahead. Taken together, we believe these efforts support improved trip frequency, broader customer engagement across shopping occasions and a more consistent experience that should help us earn that next visit. When we step back and look at the quarter holistically, a few things are clear. First, we delivered strong operational execution, resulting in margin expansion and earnings growth ahead of our outlook.

Second, the business continues to perform as expected with comp driven by ticket and supported by a stronger assortment. Third, traffic trends remain in line with our expectations following the pricing actions last year. And finally, we are deploying strategies to increase customer frequency. We are encouraged by the progress we are making in profitability and execution, and we remain focused on continuing to build on that momentum. We are operating with discipline, focused on the right priorities and building a business that is more consistent, more predictable and better positioned for long-term growth.

As we look ahead, our focus remains on continuing to execute against the priorities we have outlined while remaining responsive to the external environment and aligned with the needs of the customer. We believe our work today builds a stronger foundation for the future and positions us well for sustainable growth over time. Importantly, we believe the first quarter serves as another proof point that the actions we are taking across assortment, operations and execution are driving strong financial performance. We are building a more relevant assortment delivered through more consistently well-run stores, informed by deeper engagement with customers and a better understanding of how they shop Dollar Tree.

With that, I'll turn it over to Stewart to walk through the financial details.

Stewart Glendinning: Thank you, Mike, and good morning, everyone. For the first quarter of fiscal 2026, Dollar Tree delivered strong results across the P&L. Traffic trends improved, and we drove operating margin expansion and grew adjusted earnings per share 38% year-over-year to $1.74. This result was ahead of our outlook range. Let me walk you through the details and then discuss our updated outlook. First quarter net sales increased 7.2% to $5 billion, driven by a 3.5% increase in comparable store sales and a 3.7% contribution from net new store growth. In line with our expectations, comps were driven by a 4.5% increase in average ticket on the back of last year's pricing actions and higher multi-price penetration.

Traffic was down 1%, also in line with our expectations. By category, consumables increased 3.2%, while discretionary delivered a 3.9% comp with notable strength in toys and Personal Care. Gross margin expanded 120 basis points year-over-year, driven primarily by higher merchandise margin, freight favorability and lower shrink. These benefits were partially offset by higher tariffs and markdowns. Moving down the P&L. Total SG&A, inclusive of TSA income deleveraged 10 basis points, driven by increased investments in marketing, higher general liability costs and higher depreciation expense, partially offset by TSA income and lower payroll expenses. We continue to make progress on growing total SG&A in line with the rate of sales growth.

Even after factoring in the impact from incremental marketing investments and higher general liability costs, SG&A growth inclusive of TSA income was largely in line with sales growth. Let me take a moment to briefly address corporate SG&A. After the sale of Family Dollar, a separate corporate segment is no longer needed. However, so you can track our progress, we will continue to provide the breakout of corporate SG&A through the fourth quarter of this fiscal year. But starting in the first quarter of 2027, we intend to report one total SG&A line only. With that said, Q1 corporate SG&A, inclusive of TSA income declined 15% year-over-year and leveraged 70 basis points to 2.4% of total revenue.

Taken together, adjusted operating margin expanded 110 basis points to 9.5% and adjusted operating income dollars increased 22% year-over-year. Below the operating line, net interest expense and tax rate were in line with our expectations, while the average diluted share count was modestly favorable. Adjusted diluted earnings per share increased 38% to $1.74. Turning to the balance sheet. Inventory declined 9% versus the prior year, while sales increased 7.2%, resulting in a favorable inventory to sales spread. Our continued focus on improving inventory turns supports fresher assortments for our customers, working capital efficiency and stronger free cash flow generation. We ended the quarter with $1 billion in cash and no commercial paper outstanding.

We generated $644 million in cash from operations and invested $253 million in capital expenditures, resulting in free cash flow of $392 million. During the quarter, we repurchased about 5.5 million shares for $595 million. Subsequent to quarter end and as of today, we repurchased a further $98 million of stock. Looking back over the past 12 months, we've reduced our share count by approximately 8% and returned $1.7 billion to investors through share repurchases. Before I share our second quarter outlook and updated expectations for fiscal 2026, I would like to start by talking to you about our tariff rate assumptions. We are closely monitoring the tariff environment, and we're taking a prudent approach to our outlook.

Consistent with last quarter, we are assuming that the current tariff rates remain in place through July and then increase in the back half of the year to the levels predating the February 20 Supreme Court decision. Additionally, we've not included any tariff refunds in the outlook. Turning to our updated outlook for the year. We expect net sales in the range of $20.5 billion to $20.7 billion, reflecting comparable store sales growth of 3% to 4%.

Given the stronger first quarter performance, lower tariffs for part of the year, higher fuel costs driven by the current macro environment and a lower share count following our repurchases, we now expect adjusted diluted earnings per share in the range of $6.70 to $7.10. Note that this outlook incorporates an outstanding share count of 194 million shares, which reflects share repurchases through today's date. Turning to the second quarter. We expect net sales in the range of $4.8 billion to $4.9 billion, reflecting comparable sales store (sic) [ store sales ] growth of 2.5% to 3.5%. Adjusted diluted earnings per share are expected to be in the range of $1 to $1.15.

In closing, we are encouraged by the start to the year, and we believe we're well positioned to deliver consistent profitable growth and to create long-term shareholder value. With that, I'll turn the call over to Mike.

Michael Creedon: Thanks, Stewart. We delivered a strong start to the year with improved execution driving margin expansion and earnings ahead of expectations. The business is performing well, and we're seeing good progress in the areas we control. As we look ahead, our focus remains on disciplined execution, driving strong financial performance and staying flexible in an uncertain environment. At Dollar Tree, we're building a stronger, more resilient business positioned for consistent profitable growth. And with that, we're happy to take your questions.

Operator: [Operator Instructions] Our first question today is coming from Matthew Boss from JPMorgan.

Matthew Boss: Congrats on a nice quarter. So maybe first, could you walk us through drivers of the first quarter beat relative to your outlook from back in March? How much of it was related to lower tariff rates? And can you give us a sense of the impact from higher fuel in the quarter? And then I have a follow-up.

Michael Creedon: Matt, before Stewart jumps in, this was a really strong top line quarter for Dollar Tree. When you think about the setup, I mean we delivered a 3.5% comp on a tough compare and overcame the unfavorable Easter calendar shift. To us, this just speaks to the underlying strength of the business and the operational improvements we continue to see. So thank you to our Dollar Tree associates. They just absolutely love delivering this magic to our customers and helping our core customers get through this present time. So Stewart, do you want to talk about the margins?

Stewart Glendinning: Yes. Thanks, Mike. Matt, if you looked at the quarter and our performance relative to expectations, I mean, there's 2 big drivers here. The biggest driver was shrink, obviously, a great performance. We said we would take action there, and we have. But the other drivers, we had favorable freight relative to our assumptions and then some contribution from merch margin as well. If you take those together, that's the 120 basis points of gross margin expansion. As Mike highlighted in his prepared remarks, we're really pleased, and we're pleased because the kind of changes that we saw here were really driven by operating actions. Tariffs, while they were a year-over-year headwind, were really offset by our 5-lever actions.

So they weren't really a factor in this quarter at all. And we -- just for absolute clarity, we had no tariff refunds in this gross margin number for this quarter as well. On your question about fuel, there was some sort of small volatility in the quarter, but it really wasn't a factor so much this quarter because of the timing of the conflict and the increases in the fuel rates. We'll start to see that coming in the back part of the year.

Matthew Boss: Great. And then as a follow-up, could you maybe speak to the progression of comps and traffic in the quarter? And if you could give us some more color on the Easter performance. And then if you could just speak to how the comp is trending quarter-to-date, I think that would be really helpful.

Michael Creedon: Sure, Matt. Broadly speaking, traffic was in line with our expectations. We saw that 20 bps improvement versus Q4. And on a 2-year basis, we saw meaningful acceleration versus Q4. So we were happy to see that. The comp was strong, trended in line with expectations. And I really liked the strength in both discretionary at a 3.9% and consumables at a 3.2%. For Easter, it was an expected headwind. Two weeks fewer selling moves it up into the worst weather part of the month and seeing a customer that's shopping so much closer to need, those days matter. But the underlying was really good at Easter with record sales in the final days of Easter.

With the quarter-to-date, we don't quantify inter-quarter trends. Our comp performance informs our Q2 outlook, which we are very comfortable with. I will say we are encouraged by the strength of Mother's Day, but still so much of the quarter ahead of us. And as I mentioned last call, 2025 was an incredibly strong Q2. So I think we've hit the right balance here when I look at that Q2 comp outlook.

Operator: Our next question is coming from Seth Sigman from Barclays.

Seth Sigman: When you look at the guidance for the year, considering the magnitude of the Q1 beat and then the benefit from share repurchases, which is really more of a benefit on future quarters, it doesn't seem like you're flowing through all of that upside to the full year guidance. Obviously, you're raising it, but not to that extent. So can you just walk us through some of the puts and takes as you think about that updated 2026 guidance?

Stewart Glendinning: Well, thanks for that question. Look, I'll just start by saying we're very happy that the Q1 start was so strong because that reduces some pressure on the back part of the year given the macro uncertainties that are out there. We felt it was appropriate to raise the full year outlook, but we also wanted to be appropriately balanced and financially prudent given some of the uncertainties that are out there. And there are several variables that remain dynamic today, including tariffs, fuel, freight and just some broader consumer pressure. And the updated guidance we've given reflects a more cautious view around some of the transportation and fuel costs relative to where we entered last year.

So let me cover a couple of the details. First, when we spoke to you last quarter, there was an expectation, I think, of a shorter period of impact related to the conflict in the Middle East, and that has proved not to be the case. And so now we're assuming that the higher fuel prices last throughout the year since we don't know when that conflict will end. And we're also assuming that, that amount is absorbed by the business. At the same time, we do get some benefit from lower tariffs, which will manifest themselves in the second and the third quarter, but that hasn't really changed from last quarter since we were already expecting that.

And our assumption there is that following the statements from the administration, we will revert back to the old tariffs. So because of those things, and really, if you just step back and said, what's changed? The only thing that's changed in this whole assumption is that the fuel -- the increased fuel prices are going to go for longer. So we're not flowing that all through for the full year. But a couple of other things are important in how we've constructed that outlook. We did increase -- we did incorporate, I should say, the lower share count for the share repurchases through the day. No assumptions for any share repurchases through the rest of the year.

And we're also not assuming any benefit from the potential tariff refunds in the guidance, just given some of the uncertainty about when they will come and the amounts that will be coming. And so I want you to -- I'll just wrap up by saying I want you to keep in mind 3 upsides to the full year. The first one is that the Middle East conflict ends and oil prices drop before year-end. That happens, obviously, we'll take some benefit. Second, if the tariffs that are currently in place extend past July, then there's the potential for more benefit in the results.

And the third thing is that once we receive those tariff benefits, if we assume that there's reinvestment in the business, and we do think we will have reinvestment in the business that those reinvestment benefits could drive the flywheel of our business in a very positive way. And of course, we would intend that to be the case. So I think we've taken an approach here, which is sensible given the uncertainties, and I think I've outlined some of the things that could give you a bit of upside.

Seth Sigman: Okay. Perfect. That's super helpful. I did want to follow up on traffic, down 1% this quarter. It seems pretty manageable, especially given some of the history you've seen. When you look at Q2, difficult compare, do you still feel like traffic can inflect positively in the second half of the year? The macro backdrop and gas prices are higher. So things do feel a little bit different for the end customer than they did in March. So how are you thinking about that inflection in traffic?

Michael Creedon: Yes, thanks. We recognize the macro has changed. And as you just said, and I've said before, Q2 is a robust comparison. But we believe traffic will continue to improve over the course of the year. We take confidence in the Q1 improvement versus Q4 despite that earlier Easter. And then that 200 bps acceleration on the 2-year, I mean that's meaningful and that gives us further confidence. And then you look at the back half, we anniversary several pricing actions and our initiatives that we laid out at Investor Day, they really continue to scale. So we get benefit from that. And then finally, we're not someone that takes price a lot.

If you look at our history, it's rare. And the worst day of our pricing is the day we take that pricing. It's in a $0.25 increment, and then we continue to improve from there as others adjust their own pricing and we're at our level. So that gives us further confidence. On the macro, sure, customers are under pressure from higher fuel prices. But that also makes them more value focused. Look back at history, I always talk about that 20 years of positive comps. Periods like this reinforce Dollar Tree's position as a key partner for our customers. One, our outstanding value. Two, we're close to home with an in-and-out shop.

And three, people still want to treat themselves. And at Dollar Tree, it's guilt-free treat yourselves because of where our value is in our pricing. So that gives us confidence as we look out over the course of the year.

Operator: Our next question today is coming from Rupesh Parikh from Oppenheimer.

Rupesh Parikh: So during our store checks, we recently observed some price increase in center-store food. So curious whether this was planned, how much of the store did impact? And what's the strategy behind it? And then as you look at the places where you took pricing, how do your values compare to the competition at the new price levels?

Michael Creedon: Thanks, Rupesh. I'll start. First, just to put it in context, this is a very small portion of our assortment, less than 5%. Our objective was to improve assortment relevance and also improve price clarity for the customer. We're listening to our customers in ways we never have before. And there were brands that we had lost because we couldn't provide them at the $1 or the $1.25, and our customers wanted those brands. They were part of their occasion to come. And so at $1.50, we were able to bring that back. Rice-A-Roni is a great example. SPAM, you can see in the stores. Frank's hot sauce, and then we put that on everything.

So it really gave us a good opportunity. And then in terms of the competitiveness, Stewart, do you want to hit the process there?

Stewart Glendinning: Yes, sure, Mike. Let me talk a little bit about how we benchmark versus competitors. So Rupesh, we don't achieve value by chance. That's really my first point. Our merchants do the shopping for our customers to make sure that we get to the best value. And one of the ways they do that is that they rigorously benchmark our products against the competitors. Now remember, only about 20% of our store can actually be -- is actually like-for-like. But even when they do that like-for-like comparison, they're pretty generous to our competitors in the way that they benchmark that because they allow much larger packs to be benchmarked directly on a per ounce basis against our own packs.

And even when we do that, we still show data that shows us to be positive on a relative value basis versus the competitors. And I'll also say part of that value benchmarking is not simply what is the price, but also what is the spec of the goods that is going into. So it's a very detailed process that gets back to the point I started with, which is this doesn't happen by chance. On the 80% of the store that is sort of unique to us, our merchants still on those items, I mean, 85% of the store is less than $2. So this separates us from most competitors, generally speaking.

But outside of that, I mean, our merchants are constantly focused on how they achieve the greatest value on any of those items. They want the deals to be real deals, and that's how we end up with things like $5 hammers. And so we always start with value, we end with value across 100% of the store.

Rupesh Parikh: Great. That's helpful color. Then my follow-up question, SG&A deleveraged during the quarter. Can you speak to your confidence that SG&A can lever this year? And also since you're lapping the red stickering headwind, how should we think about SG&A growth on an underlying basis? Just any headwinds or tailwinds we should be thinking about.

Stewart Glendinning: Yes. Thanks, Rupesh. I mean yes, let me pick that apart. So first of all, the SG&A outcome is really good. Look at this against history. It's clear that the results we've delivered in Q1 are good results that put us absolutely on the track that we've been talking about. When you consider what also took place in Q1 because at the same time, we delivered these results in the first quarter, we were continuing to invest incrementally in marketing initiatives, and we also had to absorb some increased pressure from general liabilities. So let me talk to a couple of those things.

First of all, on general liabilities, I want you to think about that a little bit like we approach shrink. We've taken it apart. We know what the drivers are. We've got teams organized around it. And we have a very clear action plan that is designed to bend the trend on general liability, even though that is a bit of an industry problem. We are also continuing to make progress on growing SG&A more in line with our business. That has been the focus of our organization. And we're seeing much better cost discipline. We're seeing labor productivity, and we're starting to see those leverage characteristics.

Now in the back half of the year in the back half of the year, we will start to lap the stickering from last year. So you're going to see absolute leverage in the back half of the year. I mean how am I confident we're going to see leverage because I know we've got that onetime from last year. But putting that aside, all of our goals remain the same, and we're confident that we are on the right track to deliver our SG&A promises.

Operator: Our next question today is coming from Chris Bottiglieri from BNP Paribas.

Christopher Bottiglieri: Can you speak to what you were seeing from low-income consumer given elevated gas prices? Additionally, have you started to see any trade-in to Dollar Tree from higher income consumers? Given the environment, are you seeing anything differently from a merchandising perspective? Are you doing anything differently from a merchandising perspective?

Michael Creedon: Yes. Thanks, Chris. Yes, across all income levels, customers are value-focused and definitely prioritizing affordability, convenience and gas-saving trip efficiency. In Q1, customers saw higher gas prices for sure, but they also saw higher tax returns. And typically, we see a lag in the true impact from higher gas. So that remains to be seen a bit as to the impact they have. But no matter what the customer faces, we know that value and convenience will be top of their priorities. And for us, that's where we meet them, and that's where we think we're really well suited. And I couldn't think of a better time to have a more complete and relevant assortment.

So yes, we are seeing trade-in customers as we continue to grow households. We're the fourth largest household by penetration retailer, and it's skewing higher-income, more than half skew higher-income, and they're finding an assortment that is really relevant to them. So Dollar Tree is, it's a destination in times like this. And we will -- we've proven that over our history, and we'll continue to see that.

Stewart Glendinning: Mike, maybe just -- let me just offer a couple of thoughts on some of the data that we're seeing. We look at our performance by income cohort. We've got the ability to slice some of that. And there's no question the low-income consumer is under pressure. I mean just gone through 3 or 4 years of higher inflation generally. Think about food, health care, housing, utilities, look at all those things over the last number of years, and you will see them indexing higher, markedly higher. And now on top of that is coming this much higher gas price.

But the critical thing, and this is really the message I want to give you, is that when we look at Dollar Tree, when I take apart the data from this past quarter and we look at our store base by income demographic, all of our cohorts are comping positive in this past quarter. So comp growth is broad-based and some of the things that Mike is saying about the attractiveness of our assortment and our offering and our value to customers is proving out in the data.

Christopher Bottiglieri: And then my follow-up would be a question on tariff refunds. Can you give us an update on the tariff refunds and how you're thinking about timing, amount and the use of the proceeds?

Michael Creedon: Sure. Yes, thanks for the question. Like many companies, we're participating in the tariff refund program. There's still a lot to process through, especially on what future tariff landscape might be. But at Dollar Tree, we start with the customer. Our focus is the customer. So we would look to reinvest any refunds in the business to enhance our ability to deliver that value, convenience and discovery that our customer comes to us for. In terms of the outlook, as Stewart said, we haven't -- nothing was in Q1 and nothing is assumed in the outlook going forward.

Operator: Our next question is coming from Michael Lasser from UBS.

Michael Lasser: We're all trying to figure out the interplay between your outlook for traffic and your profitability. So on the one hand, you're making the case that given the outlook for stacks as the traffic comparisons get easier, coupled with the historic experience as traffic had come back following your initial move to the $1.25 price point, traffic will improve. But on the other hand, you're also saying that you're going to absorb some of the increased costs in the second half of the year, may focus a bit more on marketing. So perhaps you're saying you're going to need to sacrifice your profitability in order to drive that traffic.

So how do you prioritize over time, this balance between restoring positive traffic versus maintaining the profitability of the business? Is there one that you would prioritize over the other? Meaning, if traffic does not improve in the back half, you'd be willing to sacrifice some of your margins in order to do that.

Stewart Glendinning: Yes. Good. Well, let's talk about -- Michael, that's a good question. I mean I don't think we're going to say what we will do when we face specific circumstances. I can tell you what our plan is. In answer to the question that I had earlier about the outlook, I sort of made it clear that some of the benefit we took in Q1, some of the outsize performance in Q1, we will use that to help insulate the back part of the year. And so our view is we don't know how long the conflict in the Middle East is. Like others, we are hopeful that, that is a temporal and not a structural issue.

For the moment, we are treating that as a temporal problem. And that is to say we've got the resource in our forecast for the year, our estimates to be able to manage absorbing that cost. And as I also said earlier, I mean, I think there are some upsides here. I mean if we do see earlier oil change, and that will take the pressure off in an obvious way, when we get those tariff refunds, those will see reinvestment in the business. None of those are really in there.

So I think there are other places to go to reinforce traffic in the back half before we have to eat into the outlook that we provided to you today. Does that make sense?

Michael Lasser: It does, Stewart. It would be helpful if you could outline some of those levers that you would push in order to drive traffic. It does not perform up to what you're expecting. And then I have a quick follow-up.

Michael Creedon: Yes, Michael, the initiatives that are already in play that we've laid out, those improving store standards. Stewart talked about how we saw traffic by our store groups, how they were performing, where they were located, all that. All those initiatives are already underway. We really see those as gaining traction and being big drivers in the second half. You talk about shrink, shrink improves in well-run stores. And so we really look at the assortment we're delivering and looking out over the second half. We look at the improvement in the store standards. We look at the marketing that has a -- it's a kind of low-cost, quick return type marketing.

We really feel all of those will be big drivers in the second half.

Michael Lasser: Understood. My quick follow-up is, Mike, as the basket -- the price of a basket for a customer increases. So a customer comes to the register, sees that it costs a lot more to buy the same volume of goods that they might have purchased in the past. Perhaps their expectations around the store experience also elevate if they're going to have to spend more to buy the same amount. So you showed this helpful graph on where your store standards are across the distribution of your entire population. Where does that stand today?

And are you willing to invest more in labor or other operating expenses to accelerate and bend the curve on your overall level of store standards in order to meet the customers' expectations if they have risen as a result of the higher price points?

Michael Creedon: Yes. First, on the [ basket ], I think you've got to ground yourself in the fact that 85% of what we sell is less than $2 or less. So we have an average unit of $1.51. You get a basket, $12 and change. We are not the same sticker shock you're getting when you check out at a grocery store or one of these mass merchants. It's different. In terms of -- we call it the Himalayas, somebody said that at Investor Day, and I've always liked it, Jocy gets tired of me asking about the Himalayas. We are seeing improvement in its sliding to the right. Retailers are always chasing their lower-performing stores.

We were chasing more than we should have been. We've seen that improve and materially improve, shifting to the right. And I think shrink is a good proof point of that. When you've got a well-run store, we know shrink can be internal and external. And when you have a well-run store, it's kind of easier to see what's out of place, and it's easier to control the things you control, including in-stocks and shrink. So I think that's a good proof point, Michael, of the progress we've made in improving the overall store standards.

Operator: Our next question today is coming from Scot Ciccarelli from Truist Securities.

Scot Ciccarelli: So you talked about making progress on the initiatives you provided at Investor Day. I think one of the ones that really stood out was your gold store goals and how the majority of your stores basically are substandard by your own metrics. So can you help us understand the progress that you've already made on improving the store standards, whether that's percentage that shifted from 3% to 5% or whatever it is? And then also, what is your expected progress for the balance of the year?

Michael Creedon: Sure. And just to correct, I think 42% is what we showed. So it wasn't the majority were below our standards. But if the average retailer is chasing 15% to 20% of their stores, we were chasing 42% below our standard. So that's what I showed at Investor Day, that's significantly high. That's less than 1/3 today. So we haven't broken that out. But I'll tell you right now, that's less than 1/3, still not where we want it to be, but significant improvement. When you have 9,400 stores and change, turning these big QE2s are hard to do. I'm very pleased with the progress we've made over the past year.

And as more and more stores are above our standard and approaching that grand opening look daily, the ones left to manage get easier to manage just because of volume. Every room in your house is a mess, it takes longer to clean it. As you start cleaning room to room, it gets easier to clean up the kitchen. And that's really what Jocy and the team are doing. They're making that progress, and it's not linear. It starts to accelerate because of fewer stores to address.

Scot Ciccarelli: And then just a quick follow-up. We saw a decline in inventory levels. Was there something kind of unique about this quarter in terms of timing or is the expectation to manage down inventory? Because obviously, that becomes a gross margin benefit for the balance of the year if it stays lower.

Stewart Glendinning: Good question. We've been very focused over the last 12 months at trying to manage that inventory. If you look back a year ago, we felt that our turns were just too slow. We were carrying too much inventory. It was gumming up stores and distribution centers, taking too much storage space. So it's been a very conscious effort over the past 12 months to reduce the inventory. And we think it's a really great result. I mean if you look at this quarter, if the inventory has just grown in line with the sales over this past 12 months, we would have $425 million more inventory than we have today.

So it's been a good result operationally to unclog the system, and it's also been a very good outcome for working capital efficiency.

Operator: Our next question today is coming from Edward Kelly from Wells Fargo.

Edward Kelly: Stewart, I was hoping that you could [ touch ] on freight for us. Historically, obviously, it's typically been a sizable headwind for Dollar Tree when prices spike. Could you maybe just talk a bit more about ocean, domestic, spot versus contract? And I guess, overall, the real question here is how confident you are in your visibility in terms of any freight headwind being in guidance this year?

Stewart Glendinning: Got you. Okay. Well, let's pick it apart. I mean I think some of the comments that I've made in the last quarters, I would just sort of echo here today. I mean we had very favorable freight environment last year. I mean there's been plenty of capacity in the marketplace. That hasn't changed dramatically through this point. As we were coming into the year, it was one of the things that was on my watch list as a potential downside. That hasn't manifested itself, which is sort of good news. We've been through our -- most of our negotiations on freight and the base rates for those -- for that freight movement have remained pretty favorable, actually.

I mean so we haven't seen dramatic movements from last year. What is different, of course, is that everybody is facing a higher fuel bill, and it is perfectly reasonable to expect that our freight providers are going to be reimbursed for those higher costs. And so you're seeing freight surcharges, which are coming through, which are baked into our expectations for the remainder of the year. Last quarter and maybe even the quarter before, I had warned that there may be some pressure on driver availability and driver availability has been squeezed some. And so we have seen some incremental costs from driver costs, which we baked into our numbers. So all of that is in there.

And then just your last question, which is about sort of what we think about spot or long-term contracts versus short term. In the current environment, you want to avoid spot because those prices are very, very high. But if you look at our -- the construct of our freight agreements. Over the last couple of years, those have moved to more of a shorter-term bias, that is to say, a year or so. And that was conscious in the current environment, that is not a bad thing because we actually see that we'll be more tightly coupled with the marketplace.

So we still have a mix of both, just to reassure you, but it's moved a little bit more towards the shorter time frame.

Edward Kelly: Great. And then just a quick follow-up. Helium, just thoughts on helium supply, what you're seeing, how it may impact you for the balance of the year?

Michael Creedon: Sure. Helium is still a bit tight across the industry. But overall, we feel good about how we're managing it. We came into this with a stronger inventory position as one of the largest buyers, which really helps us from an access standpoint and is an improvement from where we were dealing with this in the past. I also like the timing. I wish we didn't have any helium shortages, but I like the timing of it because if you think about big holidays, Valentine's Day being a huge demand. And then we were -- so it came after Valentine's Day. We already had supply for Mother's Day and grads.

And so we see demand now ease a bit, and we'll continue to work closely with our suppliers and use our scale to keep things flowing. I do also want to mention I celebrated my son's 15th birthday on Saturday: plenty of helium balloons, but also the stick balloons set up an entire table. I say that to say the substitutability at Dollar Tree is second to none. You want to come in and celebrate, we promise you we've got something for you to celebrate and it looks great and no one can match our value.

Operator: Our next question is coming from John Heinbockel from Guggenheim Partners.

John Heinbockel: Mike, 2 things tied together. What's your vision for marketing now that you ramp it up in terms of what should you be spending where, right? I think about calls to action on a personalized basis, right, to get people in for that extra trip. How do you think about that holistically? And then what's your outlook for UPT, right, that naturally should improve, right, as you cycle some of the tariff increases?

Michael Creedon: Yes. Thanks, John. In terms of the marketing vision, we have a new muscle here. It's a test-and-learn muscle. So we're going to lean on that. We've got data now that we've never had before, really leveraging elements of AI throughout our business to really get to know our customer better. And so I say that to say our test and learn is going to fuel what we do with marketing. So when we do our banner ads, our pushes, when we do influencers, social media, when we see things that hit, we're going to lean into that, and we're going to grow always with an eye towards the returns on it.

So I said at the retail roundup earlier this year, don't think of us Super Bowl ad, but definitely think of us leaning into social, leaning into targeted messaging to our customers to make sure they're aware of what's inside the box. Our unaided awareness at Dollar Tree is incredible. It's one of the highest in retail. But what's in the box with our new expanded assortment has changed, and we want to tell our customer about that. So we'll leverage test and learn to really lean in and over time, develop our long-term marketing vision. On the units front, we think about UPT as an output, not an input to our assortment.

Given the growth in multi-price, units become less relevant as a marker. As we said or as I said at Investor Day, we're focused on space optimization and driving that shelf productivity. And so as such, we'll reallocate space to a more productive assortment. So if a $5 hammer, Stewart's favorite thing, replaces 4 $1.25 units, your units come down, but we like what we see from the shelf and the shelf is working harder than we had it working before. In Q1, units per transaction declined in line with our expectations. It's a natural output of this evolution I'm talking about.

And when we look longer term, our objective is to improve basket-building opportunities through broader assortment relevance, stronger consumables engagement and a more compelling multi-price offering that drive increased shopping frequency and fill and complete that basket cross-category purchasing behavior. So it's important. It's a little less relevant, but it's something we'll keep looking at, and it performs in line with our expectations.

Operator: We reached the end of our question-and-answer session. I'd like to turn the floor back over to Mike for any further or closing comments.

Michael Creedon: Thank you, and thanks, everybody, for joining us today and for your continued interest in Dollar Tree. I'd like to once again thank our 150,000-plus Dollar Tree associates who make magic. We appreciate you. Thanks for the time. Speak with you again next quarter.

Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.

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