Why Dollar Tree Stock Was Sliding Today

Key Points

• Dollar Tree beat estimates in the second quarter and raised its full-year guidance.

• The company called for flat EPS in the third quarter.

• Investors are still concerned about tariffs.

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Shares of Dollar Tree (NASDAQ: DLTR) were heading lower today. The discount store chain reported better-than-expected results in its second-quarter earnings report and even raised its guidance, but that wasn't enough to overcome concerns about tariff-related headwinds. As a result, the stock was down 8.8% as of 10:31 a.m. ET.

Strong growth isn't enough for Dollar Tree

Dollar Tree delivered impressive top-line results, with same-store sales up 6.5%, benefiting from 3% growth in traffic and 3.4% growth in the average ticket. That helped drive revenue up 12.3% to $4.57 billion, which topped estimates at $4.48 billion.

Gross margin was stable in the quarter, rising from 34.2% to 34.4%, though adjusted selling, general, and administrative expenses rose 50 basis points to 29.4% due to wage increases, higher depreciation expense from store improvements, and other factors.

On the bottom line, adjusted earnings per share rose 13.2% to $0.77, which easily beat estimates at $0.41. Those results included a $0.20 one-time benefit from the timing of inventory mark-on, or markup, and tariffs.

The company also completed the sale of Family Dollar in July, closing the books on a money-losing chapter in its history, as it acquired Family Dollar for $8.5 billion a decade ago.

What's next for Dollar Tree?

Despite the better-than-expected Q2 results, investors balked at its commentary around tariffs and guidance calling for EPS to be flat in the third quarter.

However, management did say that it would be able to mitigate most of the incremental margin pressure from higher tariffs and other input costs.

For the full year, it expects revenue of $19.3 billion-$19.5 billion, up from a previous range of $18.5 billion-$19.1 billion, and it called for 4%-6% comparable-sales growth.

It also raised its full-year adjusted EPS guidance from $5.15-$5.65 to $5.32-$5.72, which compares to the consensus at $5.47.

Overall, there was more good than bad in the report, so the sell-off is surprising. However, the discount chain has already been a big winner this year, so the improved guidance could have been priced in.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.