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Dollar Tree (DLTR -7%) is under pressure following its Q1 (Apr) earnings report this morning. The dollar store chain beat on EPS and revs. It also reaffirmed FY25 guidance for revenue from continuing operations at $18.5-19.1 bln and reaffirmed full year comps at +3-5%. It also increased adjusted EPS guidance, which is essentially the same net income range as its previous outlook, adjusted to reflect aggressive share repurchases.

• As a quick housekeeping matter, recall that Dollar Tree announced in late March it will sell its Family Dollar business to Brigade and Macellum for just north of $1 bln with net proceeds of approx $800 mln. The deal is expected to close in early summer. The results of Family Dollar have been reclassified as discontinued operations.
• Same-store comps in Q1 increased +5.4%, above prior guidance of +3-5%. Dollar Tree's comp was nicely balanced, with traffic up +2.5% and ticket up +2.8%. Category performance was strong across the board, with its consumables comp +6.4% and discretionary comp +4.6%, its highest discretionary comp since 4Q22. DLTR says its low prices and smaller pack sizes are perfect for families trying to manage a tight household budget, and its expanded assortment is attractive across every income level.
• In recent quarters, higher income customers have been a meaningful growth driver for Dollar Tree. In Q1, DLTR said it had measurable sales improvement across all income levels, with the most growth coming from higher income customers. DLTR believes Q2 (Jul) comps will be towards the higher end its full year outlook of +3-5%.
• Regarding tariffs, DLTR says it has multiple tools in place, including negotiating with suppliers, respecting products, moving country of origin, dropping non-economic items and leveraging multi-price capabilities. However, in the near term, DLTR expects to see some volatility relating to timing issues.
• While DLTR delayed some shipments in early April when the tariff adjustments were first announced, some products did arrive in the US that were subject to the highest tariffs. As such, Q2 profits will be meaningfully lower than last year in light of higher tariffs and other costs. Its Q2 adjusted EPS from continuing operations could be down as much as 45-50% yr/yr before reaccelerating in Q3 and Q4.

Overall, the Q1 results were good, especially the robust comps. However, the weakness seems mostly related to the sizeable tariff impact expected on its Q2 profitability. This report was not quite as positive as Dollar General's (DG) report yesterday when DG reported a much larger EPS beat. But the bigger concern for DLTR is the near term tariff impact on profits.