DLTR 10-K & 10-Q changes, risk factors and insider trading
Dollar Tree, Inc. · Nasdaq · Retail-Variety Stores · CIK 935703 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “Our growth is dependent on our ability to increase sales in existing stores.”
New heading “Our growth is dependent on our ability to expand our square footage profitably.”
New heading “Our sales and profitability are affected by our product assortment and customer response to the mix of products we sell.”
New heading “Changes in economic conditions or consumer spending habits could impact our sales or profitability.”
New heading “For additional discussion of the company’s cybersecurity posture, including risk management and governance, please see “Item 1C. Cybersecurity.””
New heading “We use, and may over time increase the usage of, artificial intelligence and machine learning in our business, and challenges with properly managing its use could adversely affect our business.”
New heading “Legal and Regulatory Risks and Related Considerations”
Removed heading “Inflation, other changes in economic conditions or consumer spending habits could impact our sales or profitability.”
Removed heading “Our growth is dependent on our ability to increase sales in existing stores and to expand our square footage profitably.”
Removed heading “Our profitability is affected by the mix of products we sell.”
Removed heading “The completion of the pending sale of the Family Dollar business is subject to various risks and uncertainties, may not be completed in a timely fashion or at all, and the pending sale may be disruptive to our business operations and adversely affect our profitability.”
Removed heading “Legal, Regulatory and Environmental, Social and Governance (“ESG”) Risks”
Largest changes
“Further, as the rules, regulations and expectations continue to evolve, our stakeholders may have differing views. For example, we may face criticism as a result of diverging sentiment among governmental authorities, regulators, customers, investors, associates, or other stakeholders. Scrutiny, or the perception that our efforts are too ambitious or misdirected, could expose us to the risk of litigation, investigations or challenges by federal or state authorities, injunctions or penalties, cause reputational harm, or adversely affect the ability of certain fund investors to hold our stock. …”see in full comparison
Future increases in costs such as the cost of merchandise, wage and benefit costs, ocean shipping rates, domestic freight costs, fuel and energy costs,see in full comparisontariffs, dutiestariffs and othermeasurestrade-relatedthat create barriers to or increase the costs associated with international trade,measures, and store occupancy costs, whether due to inflation and economic conditions, government action, geopolitical tensions, or otherwise, would reduce our profitability. For example,recentweU.S.recentlytariffshaveimposedexperienced,orandthreatenedcould continue tobeexperience,imposedincreasedonmerchandiseChina,costsMexico,associatedCanada,with the tariff environment andotherrelatedcountriesmitigationand any retaliatory actions taken by such countries could result in us incurring substantial additional costs to procure a large portion of the merchandise we offer.efforts. In addition, we have experienced increases in wage rates and laborcostscosts, distribution costs, anddistributionunfavorablecostsdevelopment in self-insured general liability claims in prior years, and we expect further increases in certain cost categories in fiscal2025.2026. In addition to pressures from a tight labor market, we recently have experienced increased labor costs in connection with our multi-price rollout. We also have incurred additional costs as a result of recent minimum wage increases by certain states and localities, and we expect additional minimum wage increases by states and localities in fiscal2025. In addition, the U.S. Department of Labor finalized a rule in 2024 raising the minimum salary for associates to have exempt status under the Fair Labor Standards Act. Although the rule’s scheduled January 1, 2025 increase to the salary thresholds was recently vacated by a federal court, this or similar future rules could materially impact our wage rates and labor costs. Separately, government or industry actions addressing the impact of climate change, or shifts in customer preferences for more sustainable products, or our adoption of goals or initiatives aligned with related stakeholder expectations may result in increases in our merchandise or operating costs.2026.
“For example, in the fourth quarter of fiscal 2023, we recorded a $1,069.0 million non-cash goodwill impairment charge and a $950.0 million non-cash trade name impairment charge resulting from our annual impairment testing and a $503.9 million non-cash store asset impairment charge related to our store portfolio optimization review. In the fourth quarter of fiscal 2024, we recorded a $490.5 million non-cash goodwill impairment charge and a $1,400.0 million non-cash trade name impairment charge resulting from our annual impairment testing and an $88.1 million store asset impairment charge. …”see in full comparison
“For example, in 2024 we resolved a previously disclosed investigation by the United States Department of Justice (the “DOJ”) regarding a historical rodent issue at Family Dollar’s West Memphis, Arkansas distribution center (“DC 202”) and the related adulteration of products regulated by the FDA. …”see in full comparison
“Further, the Supreme Court’s recent ruling striking down race-based affirmative action in higher education has increased scrutiny of corporate diversity, equity and inclusion practices. Some groups and attorneys general have begun to analogize the outcome of that case to private employment matters, asserting that certain corporate DEI practices are racially discriminatory and unlawful. …”see in full comparison
“The imposition of tariffs on imported merchandise or other actions against China or other countries from which we import goods, and any retaliatory actions or other responses by such countries, could negatively impact product availability or impair our ability to meet customer demand and could result in lost sales, an increase in our cost of merchandise or other adverse impacts on our operations, unless we are able to successfully offset or mitigate these impacts. …”see in full comparison
Full comparison: every changed paragraph (100)
Our profitability is vulnerable to cost pressures from increases in merchandise, shipping, freight and fuelfuel, costs,wages, wage and benefitbenefits and other operating costs.
Future increases in costs such as the cost of merchandise, wage and benefit costs, ocean shipping rates, domestic freight costs, fuel and energy costs, tariffs, dutiestariffs and other measurestrade-related that create barriers to or increase the costs associated with international trade,measures, and store occupancy costs, whether due to inflation and economic conditions, government action, geopolitical tensions, or otherwise, would reduce our profitability. For example, recentwe U.S.recently tariffshave imposedexperienced, orand threatenedcould continue to beexperience, imposedincreased onmerchandise China,costs Mexico,associated Canada,with the tariff environment and otherrelated countriesmitigation and any retaliatory actions taken by such countries could result in us incurring substantial additional costs to procure a large portion of the merchandise we offer.efforts. In addition, we have experienced increases in wage rates and labor costscosts, distribution costs, and distributionunfavorable costsdevelopment in self-insured general liability claims in prior years, and we expect further increases in certain cost categories in fiscal 2025.2026. In addition to pressures from a tight labor market, we recently have experienced increased labor costs in connection with our multi-price rollout. We also have incurred additional costs as a result of recent minimum wage increases by certain states and localities, and we expect additional minimum wage increases by states and localities in fiscal 2025. In addition, the U.S. Department of Labor finalized a rule in 2024 raising the minimum salary for associates to have exempt status under the Fair Labor Standards Act. Although the rule’s scheduled January 1, 2025 increase to the salary thresholds was recently vacated by a federal court, this or similar future rules could materially impact our wage rates and labor costs. Separately, government or industry actions addressing the impact of climate change, or shifts in customer preferences for more sustainable products, or our adoption of goals or initiatives aligned with related stakeholder expectations may result in increases in our merchandise or operating costs.2026.
We continue to expand and refine our multi-price assortment to deliver a broader, more relevant offering while preserving our foundational value proposition. Although our multi-price assortment has grown, the majority of our products are priced at $1.25, and 85% of products in the average Dollar Tree store are currently priced at $2.00 or less, and we generally have fewer price bands for our goods than other retailers. Accordingly, we may not be able to adjust our prices to effectively offset cost increases while providing expected value. Further, raising the price points of merchandise could cause customers to buy fewer products and affect our competitive position with other retailers.
Our ability to re-negotiate supplier terms, re-engineer products for efficiency, shift country of origin where it adds advantage or discontinue lower-margin or underperforming items, in addition to targeted retail price changes, in order to address a volatile cost environment is critical to maintaining our profitability levels. We can give no assurance that we will be able to successfully mitigate cost pressures, maintain our profitability and competitiveness and provide our customers with desirable merchandise and value that they expect in the future.
In our Dollar Tree segment, we continue to expand our brand assortment at the $1.25 price point and our multi-price product assortment generally, which began with the introduction of $3 and $5 Dollar Tree Plus product in select discretionary categories, expanded into $3, $4 and $5 frozen and refrigerated product, and now comprises a wide assortment of other consumable and discretionary product at varying price points. Although we have increased our price points at our Dollar Tree stores and expanded our multi-price assortment, we may not be able to adjust our prices to offset cost increases. Further, raising the price point of merchandise could cause customers to buy fewer products. As a result, our ability to adjust our product assortment, to operate more efficiently or to increase our comparable store net sales in order to offset cost increases is critical to maintaining our profitability levels. Further, supply chain constraints and higher commodity costs could make it more difficult for us to obtain sufficient quantities of certain products and could negatively affect our product assortment and merchandise costs. We can give no assurance that we will be able to adjust our product assortment, operate more efficiently or increase our comparable store net sales in the future. Please see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion of the effect of economic factors on our operations.
We rely on the timely availability of imported goods at favorable wholesale prices. Merchandise imported directly typically accounts for approximately 40% of our Dollar Tree segment’s total retail value purchases and approximately 12% of Family Dollar’s total retail value purchases. In addition, we believe that a significant portion of our goods purchased from domestic vendors is imported. Imported goods are generally less expensive than domestic goods and result in higher profit margins. Any increase in the cost of our imported merchandise or a disruption in the flow of those goods for any reason could have an adverse impact on our operations and significantly decrease our profits. Disruptions or cost increases may result from factors such as:
•geopolitical tensions, international disputes or conflicts, military confrontation, blockade, war, economic sanctions, piracy, acts of terrorism or other factors affecting international shipping traffic; changes in currency exchange rates or government policies and local economic conditions, including inflation (including energy prices and raw material costs) in the country of origin;
•changes in currency exchange rates or government policies and local economic conditions, including inflation (including energy prices and raw material costs) in the country of origin;
Among our foreign suppliers, China is the source of the majority of our direct imports. In early 2025, the United States imposed a new tariff and trade policy, announcing significant additional tariffs on a wide variety of products originating from countries worldwide, including China, and other countries from which we import goods. Subsequently, there have been various updates and revisions to these tariffs and the United States’ tariff policy, with some tariffs delayed or temporarily paused as country-specific agreements have been negotiated with certain countries. On February 20, 2026, the Supreme Court ruled that certain of the tariffs imposed under the International Emergency Economic Powers Act (“IEEPA”) were unlawful. Following the Supreme Court’s decision, the United States imposed new, temporary tariffs on imports from all countries under Section 122 of the Trade Act of 1974 and could take action to invoke other laws to collect tariffs. While the company has taken action to preserve its rights, there remains substantial uncertainty regarding the impacts of this decision on the availability, timing, and amount of potential refunds, if any, for the invalidated tariffs, the scope and duration of newly announced tariffs, and the possibility of further additional or modified tariffs or retaliatory actions.
The imposition of tariffs on imported merchandise or other actions against China or other countries from which we import goods, and any retaliatory actions or other responses by such countries, could negatively impact product availability or impair our ability to meet customer demand and could result in lost sales, an increase in our cost of merchandise or other adverse impacts on our operations, unless we are able to successfully offset or mitigate these impacts. We have actively implemented mitigation strategies to offset the impact of tariffs and other cost pressures by re-negotiating supplier terms, re-engineering products for efficiency, shifting country of origin where it adds advantage, discontinuing lower-margin or underperforming items and executing targeted retail price changes. We experienced increased costs during fiscal 2025 related to the implementation of these mitigation strategies, including significant labor and other discrete costs related to price changes, and our results could continue to be negatively impacted by tariffs and related measures in the future. We expect tariff volatility to persist in the near-term, and implementation costs associated with our mitigation strategies may continue to be experienced before the benefits from those efforts are expected to materialize. Further, there is no guarantee that we will be able to successfully mitigate the impact of tariffs through one or more of the foregoing strategies or that our customers will respond favorably to the implementation of these strategies. The competitiveness of our products could be reduced if our competitors are able to react quickly to changes in the tariff environment to increase the relative value of their products or are otherwise able to offset the impact of tariffs.
These direct and indirect impacts and the collective interaction of tariffs and other related measures, our mitigation strategies and those of our competitors, our customers’ response and consumer behavior generally, and other factors, could have a material adverse effect on our business, financial condition and results of operations.
Among our foreign suppliers, China is the source of the majority of our direct imports. In early 2025, the United States imposed or threatened to impose significant additional tariffs, including reciprocal tariffs, on China, Mexico, Canada and other countries from which we import goods. In addition, the Trump administration has announced plans to impose significant fees on Chinese shipping companies and any Chinese-built vessels that enter U.S. ports. The imposition of these or other additional tariffs on imported merchandise or other actions against China or other countries from which we import goods, and any retaliatory actions or other responses by such countries, could impair our ability to meet customer demand and could result in lost sales, an increase in our cost of merchandise or other adverse impacts on our operations, unless we are able to successfully offset or mitigate these impacts. Our mitigation efforts could include negotiating lower product costs, rebates or invoice deductions; shifting supply sources to alternate countries; changing our product assortment or discontinuing certain items; or increasing our prices. Even if we are able to mitigate the impact of tariffs in the short-term through one or more of the foregoing actions, a change in product assortment, reduced product offering or increase in pricing could reduce the competitiveness of our products, particularly if our competitors do not keep pace with any such changes or are able to offset the impact of tariffs through other actions.
Furthermore, in response to the recent tariffs announced by the United States, China and other countries have imposed or proposed additional tariffs on certain exports from the United States. These and any other retaliatory countermeasures imposed by countries subject to such tariffs, such as China, could increase our, or our vendors’, import expenses. Additionally, even if the products we import are not directly impacted by additional tariffs, the imposition of such additional tariffs on goods imported into the United States could cause increased prices for consumer goods in general, which could have a negative impact on consumer spending for discretionary items reducing demand for our products. These direct and indirect impacts of increased tariffs or trade restrictions implemented by the United States, both individually and cumulatively, could have a material adverse effect on our business, financial condition and results of future operations.
In addition, the U.S. Department of Commerce recently has conducted investigations of anti-dumping and countervailing duties with respect to papervarious platesgoods andwe aluminumimport pans.from Basedforeign countries. For example, based on determinations by the Department of Commerce and International Trade Commission, we accrued $25.0 million related to additional duties on paper plates imported during fiscal 2024. Any additional duties related to these or other goods that we importimport, including any imposed on a retroactive basis, could increase the cost of our imported merchandise and adversely impact our operations and profit margins. Please see “Our profitability is vulnerable to cost pressures from increases in merchandise, shipping, freight and fuel costs, wage and benefit and other operating costs” and Note 5 to our consolidated financial statements under the caption “Contingencies” for further discussion of the effect of costs on our operations.
Higher costs and disruptions in our distributionsupply networkchain could have an adverse impact on our sales and profitability.
Our success is dependent on our ability to import or transport merchandise to our distribution centers and store, pick and shipdeliver merchandise to our stores in a safe, timely and cost-effective manner,manner. and weWe are relyingexecuting on a number of initiatives to improve uponmodernize our logisticsdistribution execution,network, includingexpand newdistribution center capacity, enhance warehouse management systems, and improve transportation systems. These initiatives are expected to increase our costs in the short term. In addition to our internal distribution network, we also rely heavily on third parties including ocean carriers and truckers. Some of the factors that have had and could have an adverse effect on our distribution network or costs are:
•Efficient operations and management. Distribution centers and other aspects of our distribution network are complex and difficult to operate efficiently. If we fail to execute properly, we may not be able to deliver merchandise at the quality and in the quantities and at the times demanded to successfully meet our customers’ demand. We have also experienced and could continue to experience challenges in attracting and retaining an adequate and reliable workforce. Although we have offered enhanced wages in certain markets to address the shortage of labor at our distribution centers, such measures have increased our costs and are expected to continue to increase our costs, which could have an adverse effect on our margins and profitability.
•Distribution center capacity. WeTo recently have experienced capacity pressure insupport our distributiongrowth networkinitiatives, andwe are working to expand our distribution center capacity, including to replace that lost withfollowing the 2024 tornado that destroyed our Marietta, Oklahoma distribution center. In 2025, we purchased a distribution center outside of Phoenix, Arizona that we plan to open in 2026 and broke ground on a new distribution center in Marietta, Oklahoma that is expected to be fully operational by 2027. To the extent that we are unable to, or experience delays in, opening new distribution centers or otherwise expanding our capacity, our product availability, product mix, overall sales, and merchandise margins could be impacted, especially at Dollar Tree.impacted.
•Shipping costs. WeWhile have previouslywe experienced significantlower changesdomestic and import freight costs in fiscal 2025, we expect those costs to increase in the future. We could experience increased freight costs.costs due to shifts in country of origin to mitigate tariff impacts and increased spot market usage. Ocean shipping and other freight costs could increase because of the macroeconomic environment, armed conflicts and other geopolitical tensions, or other shocks or disruptions in the global supply chainchain. and asAs freight contracts terminate or renew.renew, our costs or benefits may lag changes in market rates based on the timing of freight contract terms. A significant increase in our freight costs could have a material adverse impact on our business and results of operations. A return to more normalized costs/rates may lag a decrease in market rates based on the timing of freight contract terms.
•Trucking and diesel fuel costs. We have experienced significant increases in trucking costs in recent yearsyears, dueand could continue to aexperience, difficulties in sourcing adequate truck driverdrivers, shortagewhich andcould otherincrease factors.our Thecosts truckor driver shortage also requiredrequire us to increase our use of more expensive surge carriers to transport our merchandise. In addition, we could experience increased costs related to fuel prices due to ongoing conflicts in the Middle East and Ukraine and other geopolitical tensions.
•Shipping disruptions. We have experienced disruptions in the global supply chain, including issues with shipping capacity and port congestion, and could experience disruptions because of geopolitical tensions and other international events such as armed conflict, war, economic sanctions, cyberattacks, piracy or acts of terrorism. Tensions in the Persian Gulf and Red Sea and traffic restrictions through the Panama Canal caused global supply chain disruptions in recent years and may continue, whichwhich, along with ongoing conflicts in the Middle East, could increase ocean shipping costscosts, transit times and transitport times.congestion. Our receipt of imported merchandise has been and may in the future be disrupted or delayed because of these or other factors. Delays could potentially have a material adverse impact on future product availability, product mix, overall sales, and merchandise margins, especially at Dollar Tree.margins.
•Vulnerability to natural or man-made disasters, including climate change. A fire, explosion or natural disaster at a port or any of our distribution or store support facilities could result in a loss of merchandise and increased costs and impair our ability to adequately stock our stores. Some of our facilities are in areas that are vulnerable to earthquakes, hurricanes, tornadoes or floods, such as the tornado that destroyed our Marietta, Oklahoma distribution center in 2024 and resulted in the loss of inventory and the facility itself as well as additional distribution and storage costs. In addition, the potential long-term impacts of a changing climate may be widespread and unpredictable and present the possibility of physical risks (such as extreme weather conditions or rising sea levels) and transition risks (such as regulatory changes and reputational considerations). For example, an increase in the severity and frequency of extreme weather events and patterns may increase our operating costs, disrupt manufacturing or our supply chain, change customer buying patterns, result in closures of our stores or distribution and store support centers and impede physical access to our stores. During 2024, a tornado destroyed our Dollar Tree distribution center in Marietta, Oklahoma. In addition to the loss of inventory in the facility and the facility itself, we incurred additional costs as a result of additional stem miles for product delivery and outside storage for the stores previously serviced by that distribution center, and we expect those costs to continue in 2025.
Our growth is dependent on our ability to increase sales in existing stores.
Our strategic plan includes improvements in store productivity through initiatives to improve store standards and operational consistency, refresh and renovation programs, shelf productivity optimization, and elevated store execution and cleanliness. Our ability to drive traffic and increase sales in our existing stores is critical to our success and is dependent on a variety of factors, including merchandise quality, assortment, price, relevance and availability, marketing efforts, store operations and customer satisfaction. In addition, increased competition could adversely affect our sales. If our initiatives to improve store productivity are unsuccessful, our customers do not respond favorably to these initiatives, or we otherwise are unable to grow our sales or productivity in line with our expectations, our margins and profitability would be adversely affected.
Our growth is dependent on our ability to expand our square footage profitably.
Expanding our square footage profitably depends on a number of uncertainties, including our ability to locate, lease, build out and open or expand stores in suitable locations on a timely basis under favorable economic terms. We also open or expand stores within our established geographic markets, where new or expanded stores may draw sales away from our existing stores. Obtaining an increasing number of profitable stores is an ever-increasing challenge. In certain cases, we have obtained substantial numbers of leases from other retailers, either by assumption in bankruptcy or by sublease of their closed stores, which may subject us to risks relating to their creditworthiness, such as to the original landlords.
In addition, our expansion is dependent upon the company and its third-party developers’ abilities to acquire land, obtain financing, and secure necessary permits and approvals. We have experienced higher construction, rent, commodity and other costs associated with the build-out of new stores and the renovation of existing stores. We have also experienced delays in new store openings and the renovation of existing stores due to inspection, permitting and contractor delays and limitations on the availability of certain fixtures and equipment. We anticipate these increased costs and delays may continue for the foreseeable future, which could adversely affect our sales and profitability. Further, we may not manage our expansion effectively, and our failure to achieve our expansion plans could materially and adversely affect our business, financial condition and results of operations.
Our sales and profitability are affected by our product assortment and customer response to the mix of products we sell.
Our success depends on our ability to select and obtain sufficient quantities of relevant merchandise at prices that allow us to sell such merchandise at profitable and appropriate prices, and to market such merchandise effectively to customers. We continue to expand and refine our multi-price assortment to deliver a broader, more relevant offering while preserving our foundational value proposition. However, if our value proposition does not meet customer expectations or we do not provide a selection of merchandise that is attractive to our customers, our products will be less desirable to our customers and our traffic and sales could suffer. Further, our failure to drive brand clarity and loyalty around our expanded product assortment could negatively affect our customer’s perception of our value proposition or harm our reputation. In addition, the success of our business depends in part on our ability to anticipate, identify and respond promptly to evolving trends in consumer preferences. If we are unable to accurately predict the products that our customers will demand, implement competitive and effective pricing and marketing strategies, or timely and appropriately respond to changing demographics, consumer needs, preferences or spending patterns, then the demand for our products (including our higher-margin discretionary merchandise), our market share and our results of operations could be adversely affected.
In addition, our product mix is affected by the supply of goods and could be negatively impacted by various factors, including those described under “Risks associated with merchandise supply could adversely affect our financial performance” and “Higher costs and disruptions in our supply chain could have an adverse impact on our sales and profitability” within this “Item 1A. Risk Factors.”
Changes in economic conditions or consumer spending habits could impact our sales or profitability.
Furthermore, factors that could adversely affect consumer disposable income could decrease our customers’ spending on products we sell most profitably. Over the past several years, we have experienced a shift in consumer purchasing from higher-margin discretionary merchandise to lower-margin consumable goods. Factors that could reduce our customers’ disposable income and over which we exercise no influence include inflation in food, housing, fuel or other energy costs, increased unemployment, increases in mortgage and interest rates, lack of available credit, higher tax rates and other changes in tax laws, increasing healthcare costs, and changes in government subsidies such as unemployment and food assistance programs, including the Supplemental Nutrition Assistance Program (“SNAP”). If consumer spending on the goods we sell declines as a result, there could be a material adverse impact on our business and results of operations.
The retail industry is highly competitive with respect to price, customers, store locations, merchandise quality, product assortment, service offerings, customer service, shopping experience, product sourcing, labor, and market share. The marketplace is highly fragmented as many different retailers compete for market share by utilizing a variety of sales channels, store formats and merchandising strategies, including mobile and online shopping. Our ability to successfully differentiate ourselves depends on many competitive factors, including customer perceptions regarding our shopping experience, the safety and cleanliness of our stores, our ability to offer attractive products at affordable prices, and our in-stock levels. Further, to remain competitive, we may be required to change our product offerings or lower our prices, but our ability to do so may be limited or delayed with the result that we could see lower traffic or sales or reduced profitability.
We expect competition to increase in the future. There are no significant economic barriers for others to enter our retail sector. We compete with discount stores and many other retailers, including mass merchandise, warehouse club, grocery, drug, convenience, variety, online retailers, and certain specialty stores. Some of our current or potential competitors have greater financial, distribution, marketing and other resources than we do. In addition, the substantial growth in e-commerce and expanded availability of mobile, web-based and other digital technologies has encouraged the entry of many new competitors, new business models, and an increase in competition from established companies looking for ways to create convenient and competitive online or mobile shopping alternatives. While we have partnered with online personal shopping providers like Instacart and UberEats, some of our current and potential competitors have more significant online and mobile shopping platforms or other advances in technologies and capabilities (including artificial intelligence) than we currently do. We cannot guarantee that we will continue to be able to compete successfully against existing or future competitors, and we believe that doing so may require substantial capital expenditures, for example in technology. Our ability to effectively compete will depend upon our ability to successfully develop and execute on our strategic initiatives and to anticipate or respond effectively to competitive pressures, industry changes that may include mergers and acquisitions, technological advancements and changing customer preferences and shopping habits. If we fail to do so, it could adversely affect our operating results and financial condition. Please see “Item 1. Business” for further discussion of the effect of competition on our operations.
Our highest sales periods are during the Christmas and Easter seasons, and we generally realize a disproportionate amount of our net sales and our operating and net income during the fourth quarter. In anticipation, we stock extra inventory and hire many temporary employees to prepare our stores and help ship product from our distribution centers. Lead times for seasonal product purchases are longer and could result in inventory markdowns if sales do not meet expectations. Adverse events such as inclement weather or unfavorable economic conditions during the fourth quarter could cause a reduction in sales during these periods, which in turn could adversely affect our operating results, particularly operating and net income, to a greater extent than if a reduction occurred at other times of the year. Untimely merchandise delays due to receiving or distribution problems could have a similar effect. When Easter is observed earlier in the year, the selling season is shorter and, as a result, our sales could be adversely affected. Easter was observed on April 20, 2025, and will be observed on April 5, 2026.
We could experience a decline in consumer confidence and spending if our customers become concerned about the quality and safety of the products we sell. TheOur saleprivately ofsourced privateand control brand items has beenare an important component of our product mix and our sales and profitability growth plans. Broad market acceptance of our private brands depends on many factors, including pricing, quality, customer perception, and grosstimely profitdevelopment rateand enhancementintroduction plans.of new products. The sale and expansion of these offerings also subjects us to or increases certain risks, such as: product liability claims and product recalls; disruptions in raw material and finished product supply and distribution chains; supplier labor and human rights issues, and other risks generally encountered by entities that source, sell and market exclusive branded offerings for retail. Failure to appropriately address these risks could materially and adversely affect our private brand initiatives, reputation, results of operations and financial condition.
Inflation, other changes in economic conditions or consumer spending habits could impact our sales or profitability.
Furthermore, factors that could adversely affect consumer disposable income could decrease our customers’ spending on products we sell most profitably. In fiscal 2024, we continued to experience a material shift in consumer purchasing from higher-margin discretionary merchandise to lower-margin consumable goods, and we expect this trend could continue in 2025. Factors that could reduce our customers’ disposable income and over which we exercise no influence include inflation in food, housing, fuel or other energy costs, increased unemployment, increases in mortgage and interest rates, lack of available credit, higher tax rates and other changes in tax laws, increasing healthcare costs, and changes in government subsidies such as unemployment and food assistance programs, including the Supplemental Nutrition Assistance Program (“SNAP”). If consumer spending on the goods we sell declines as a result, there could be a material adverse impact on our business and results of operations.
Our growth is dependent on our ability to increase sales in existing stores and to expand our square footage profitably.
Existing store sales growth is critical to good operating results and is dependent on a variety of factors, including merchandise quality, price, relevance and availability, store operations and customer satisfaction. In addition, increased competition could adversely affect our sales. We have embarked on several initiatives to increase our sales and profitability, some of which remain in the early stages. If these initiatives are unsuccessful or we otherwise are unable to grow our sales in line with our expectations, our margins and profitability would be adversely affected.
In addition, we have entered into an agreement to sell the Family Dollar business. For more information, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 15 to our consolidated financial statements. If that sale is completed, our future growth and operating results will be dependent on our ability to increase sales and profitability in our Dollar Tree stores.
Expanding our square footage profitably depends on a number of uncertainties, including our ability to locate, lease, build out and open or expand stores in suitable locations on a timely basis under favorable economic terms. We also open or expand stores within our established geographic markets, where new or expanded stores may draw sales away from our existing stores. Obtaining an increasing number of profitable stores is an ever-increasing challenge.
In addition, our expansion is dependent upon the company and its third-party developers’ abilities to acquire land, obtain financing, and secure necessary permits and approvals. We have experienced higher construction, commodity and other costs associated with the build-out of new stores and the renovation of existing stores. We have also experienced delays in new store openings and the renovation of existing stores due to inspection, permitting and contractor delays. In addition, we have experienced delays in new store openings due to limitations on the availability of certain fixtures and equipment. We anticipate these increased costs and delays may continue for the foreseeable future, which could adversely affect our sales and profitability. Further, we may not manage our expansion effectively, and our failure to achieve our expansion plans could materially and adversely affect our business, financial condition and results of operations.
Our profitability is affected by the mix of products we sell.
Our gross profit margin decreases when we increase the proportion of higher cost goods we sell. For example, some of our consumable products carry higher costs than other goods, so our gross profit margin will be negatively impacted as the percentage of our sales from higher cost consumable products increases. Imported merchandise and private label goods generally carry lower costs than domestic goods. Our product mix is affected by the supply of goods, including imported goods, and could be negatively impacted by various factors, including those described under “Risks associated with merchandise supply could adversely affect our financial performance” on page 10 and “Higher costs and disruptions in our distribution network could have an adverse impact on our sales and profitability” on page 11.
Our success also depends on our ability to select and obtain sufficient quantities of relevant merchandise at prices that allow us to sell such merchandise at profitable and appropriate prices. We recently have been expanding our multi-price product assortment at Dollar Tree, which now comprises a wide assortment of consumable and discretionary product at varying price points. If our sales price that is too high, or we do not provide a selection of popular merchandising items, our products will be less attractive to our customers and our sales could suffer. We are continuing to refine our pricing strategy and expand our multi-price assortment at Dollar Tree to provide value to our customers and increase customer traffic and loyalty and store productivity. Our inability to successfully implement our pricing strategies or multi-price assortment and provide our customers with desirable merchandise at appropriate prices could have a negative effect on our business.
Our highest sales periods are during the Christmas and Easter seasons, and we generally realize a disproportionate amount of our net sales and our operating and net income during the fourth quarter. In anticipation, we stock extra inventory and hire many temporary employees to prepare our stores and help ship product from our distribution centers. Lead times for seasonal product purchases are longer and could result in inventory markdowns if sales do not meet expectations. A reduction in sales during these periods could adversely affect our operating results, particularly operating and net income, to a greater extent than if a reduction occurred at other times of the year. Untimely merchandise delays due to receiving or distribution problems could have a similar effect. When Easter is observed earlier in the year, the selling season is shorter and, as a result, our sales could be adversely affected. Easter was observed on March 31, 2024, and will be observed on April 20, 2025.
The retail industry is highly competitive with respect to price, customers, store locations, merchandise quality, product assortment, service offerings, customer service, shopping experience, product sourcing, labor, and market share. The marketplace is highly fragmented as many different retailers compete for market share by utilizing a variety of sales channels, store formats and merchandising strategies, including mobile and online shopping. To remain competitive, we may be required to change our product offering or lower our prices, but our ability to do so may be limited with the result that we could see lower sales or reduced profitability.
We expect competition to increase in the future. There are no significant economic barriers for others to enter our retail sector. We compete with discount stores and many other retailers, including mass merchandise, warehouse club, grocery, drug, convenience, variety, online retailers, and certain specialty stores. Some of our current or potential competitors have greater financial, distribution, marketing and other resources than we do. In addition, the substantial growth in e-commerce and expanded availability of mobile, web-based and other digital technologies has encouraged the entry of many new competitors, new business models, and an increase in competition from established companies looking for ways to create convenient and competitive online shopping alternatives. Some of our current and potential competitors have more significant online shopping platforms than we do, and our reliance on the in-store shopping experience could reduce our competitiveness. We cannot guarantee that we will continue to be able to compete successfully against existing or future competitors, and we believe that doing so may require substantial capital expenditures, for example in technology. Our ability to effectively compete will depend upon our ability to successfully develop and execute on our strategic initiatives. Please see “Item 1. Business” for further discussion of the effect of competition on our operations.
Successful execution of our plans and strategies also depends on the efforts of key management personnel. The labor market for these executives and other key personnel is nationwide in scope and intensely competitive. The loss of such personnel, or the inability to hire, train, motivate and retain them, or to manage changes to our organizational structure and capacity, could, at least temporarily, have an adverse effect on the company’s operating results and financial condition. In addition, failure to develop an adequate succession plan for senior positions could reduce our organizational capabilities and competitive advantage during a transition. We recently have experienced turnover in senior positions, which, in addition to organizational changes related to our pending sale of the Family Dollar business, can disrupt progress in implementing business strategies, result in a loss of institutional knowledge, cause greater workload demands for remaining team members and divert attention away from key areas of the business, or otherwise negatively impact the company’s growth prospects or future operating results.
Risks Relating to Our Strategic Initiatives and the Pending Sale of the Family Dollar Business
We may not be successful in implementing or in anticipating the impact ofexecuting important strategic initiatives, which may have an adverse impact on our business and financial results.
InWe recentcontinue years,to we have embarkedexecute on a number of strategic initiatives acrossto theaccelerate profitable growth for Dollar Tree andas a standalone banner following the sale of Family DollarDollar. bannersDuring 2025, we outlined our strategic plan designed to drivereinforce productiveour salescore growthbrand promise—value, convenience, and improvediscovery—while improving operating efficiency.leverage Inand ourreturns Dollarover Treetime. banner, thoseThose initiatives include, among others:
•Expanding and refining our multi-price assortment to deliver a broader, more relevant offering while preserving the foundational value proposition of Dollar Tree;
•Managing costs with agility, including our strategies to mitigate tariffs and inflationary pressures, manage operating expenses, and reduce corporate SG&A as a percentage of sales;
•Continuing new store growth, as well as improving store standards and operational consistency through refresh and renovation programs, shelf productivity optimization, and initiatives to elevate store execution and cleanliness;
•Expanding and modernizing our distribution network, enhancing warehouse management systems, and improving our transportation systems; and
•Modernizing our technology platform, replacing legacy systems, and enhancing our mobile app, human capital management systems, supply chain platforms, and data analytics capabilities.
We may not be successful in executing or achieving the anticipated benefits of these important strategic initiatives, which may not result in the desired growth or impacts on our traffic and basket size, sales, operating leverage, costs, profitability or other results. The implementation, timing and results of these complex strategic initiatives are subject to various risks and uncertainties, which may require that we make significant estimates and assumptions in our planning. The success of these initiatives depends, among other things, on our ability to execute and scale these initiatives consistently across a large, geographically diverse store and distribution footprint and, ultimately, customer receptiveness and acceptance. If our initiatives, including our expanded multi-price offerings, do not appeal to our customers, or if we are unable to consistently meet our brand execution promises in a cost-effective manner, we may experience a loss of customer confidence or lost sales, which could adversely affect our reputation and results of operations.
•We continue to expand our Dollar Tree brand assortment at the $1.25 price point and expand our multi-price product assortment, which now comprises a wide assortment of consumable and discretionary product at varying price points.
Management's Discussion & Analysis (MD&A)
New heading “Transition Services Agreement Income, Net”
New heading “Other (Income) Expense, Net”
Largest changes
In fiscal 2024,see in full comparisonweFamily Dollar was also considered a reporting unit for goodwill impairment evaluations prior to being classified as held for sale. In connection with the fiscal 2024 annual impairment evaluation, management’s qualitative assessment indicated that it was more likely than not that the fair values of the Family Dollar reporting unit and the Family Dollar trade name were less than their carrying values. Therefore, management performed a quantitative assessment of both the Family Dollar goodwill and trade name. We estimated the fair value of the Family Dollar reporting unit by using market participant assumptions as there was an expected sale price for the business based on negotiations with potentialthird partythird-party buyers. Based on this fair value, we recognized an impairment loss of $490.5 million which represented the remaining carrying amount of goodwill from the Family Dollar business. The fiscal 2024 goodwill impairment was driven primarily by a decrease in enterprise value attributed to the Family Dollar business using the expected sale price compared to our carrying value. Our evaluation ofgoodwillthe Family Dollar trade name resulted in an impairment charge of$1,069.0$1.4millionbillion in fiscal20232024,relateddriventoprimarily by a decrease in the royalty rate assumption based on lower future growth rates and earnings before interest and taxes (“EBIT”) margin assumptions for the Family Dollar reporting unit.Our evaluation of goodwill did not result in impairment charges being recorded in fiscal 2022.
For purposes of our goodwill impairment evaluation, the reporting units aresee in full comparisonFamily Dollar,Dollar Tree and Dollar Tree Canada. Goodwill has been assigned to the reporting units based on prior business combinations related to the brands. We have the option to initially perform a qualitative assessment to determine whether it is more likely than not that the fair value is less than the carrying amount. Alternatively, we may bypass the qualitative assessment and proceed directly to performing the quantitative impairment test.In connection withAt thefiscal 2024 annual impairment evaluation, management’s qualitative assessment indicated that it was more likely than not that the fair valuesend ofthefiscalFamily2025,Dollar reporting unit and the Family Dollar trade name were less than their carrying values. Therethere were no indicators that the fair value of the Dollar Tree or Dollar Tree Canada reporting units were less than their carrying value.Therefore, management performed a quantitative assessment of both the Family Dollar goodwill and trade name.
“During fiscal 2025, the volatile tariff environment and the implementation of these mitigation strategies resulted in increased costs, including significant labor and other discrete costs related to price adjustments, which also impacted our net sales. The tariff environment remains fluid, and we expect our results to continue to be impacted by near-term challenges, potentially including higher costs due to increases or variability in tariffs. …”see in full comparison
The selling, general and administrative expense rate increasedsee in full comparison22070 basis points in fiscal20242025 primarily due to higher store payroll in support of our pricing initiatives and from wage increases, higher incentive compensation, higher depreciation expense from store investments,softwareandimpairmentsunfavorable development of general liability claims, partially offset by lower stock compensation, lower impairment costs, lower corporate payroll, andrelatedleveragecontractfromterminationthecosts,comparabletemporarystorelabornettosalessupportincrease.ourFiscalmulti-price2024rollout, higher utilities costs,included higher stock compensation expense resulting from the accelerated vesting of the former Chief Executive Officer’s optionaward, the loss of leverage from the low single-digit comparable store net sales increaseaward andthe loss of leverage from the 53rd week of sales in the prior year. Thesoftware impairments and related contract termination coststotaledtotaling $58.0 millionand wererelated to enterprise merchandising and store system projects that were not fully implemented and were cancelled in connection with the decision to sell the Family Dollar business.
“Our net sales are derived from the sale of merchandise. Two major factors tend to affect our net sales trends. First is our success at opening new stores. Second is the performance of stores once they are open which can be impacted by a number of factors including operational performance, competition, inflation, consumer buying preferences and changes in the product assortment, pricing, or quality. Sales vary at our existing stores from one year to the next. …”see in full comparison
“99 Cents Only Stores Acquisition. During the second quarter of fiscal 2024, we acquired designation rights for up to 170 leases of 99 Cents Only Stores across Arizona, California, Nevada and Texas. The designation rights were acquired following the bankruptcy of 99 Cents Only Stores, which provided us an attractive opportunity to secure leases in priority markets. We secured the leases for 164 of these stores and substantially all have opened as Dollar Tree stores.”see in full comparison
Full comparison: every changed paragraph (85)
This section of Form 10-K generally discusses fiscal 2025 and fiscal 2024 events and results, and year-to-year comparisons between fiscal 2025 and fiscal 2024. Discussions of fiscal 2023 items and year-to-year comparisons between fiscal 2024 and fiscal 2023 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended February 1, 2025.
During fiscal 2024, the Family Dollar business met the held for sale and discontinued operations accounting criteria. Accordingly, the results of operations of the Family Dollar business are reported as discontinued operations in the accompanying Consolidated Statements of Operations for all periods presented and the related assets and liabilities are classified as assets and liabilities of discontinued operations in the accompanying Consolidated Balance Sheets. Unless otherwise noted, all amounts, percentages and discussions below reflect only the results of operations and financial condition of our continuing operations.
Overview
We are a leading operator of more than 8,800 retail discount stores, as of February 1, 2025, offering merchandise predominantly at the opening price point of $1.25, with additional offerings at higher price points.
Our net sales are derived from the sale of merchandise. Two major factors tend to affect our net sales trends. First is our success at opening new stores. Second is the performance of stores once they are open which can be impacted by a number of factors including operational performance, competition, inflation, consumer buying preferences and changes in the product assortment, pricing, or quality. Sales vary at our existing stores from one year to the next. We refer to this as a change in comparable store net sales, because we include only those stores that are open throughout both of the periods being compared, beginning after the first fifteen months of operation. We include sales from stores expanded, relocated or remodeled during the year in the calculation of comparable store net sales, which has the effect of increasing our comparable store net sales. Stores that were converted from Family Dollar stores to Dollar Tree stores are considered to be new stores and are not included in the calculation of the comparable store net sales change until after the first fifteen months of operation under the Dollar Tree brand. Additionally, sales that are excluded from the calculation of comparable store net sales are referred to as non-comparable store sales and consist of sales from new stores open fifteen months or less and stores that are closed permanently or expected to be closed for more than 90 days.
Financial highlights for the fiscal year ended FebruaryJanuary 1,31, 2025,2026, as compared to the fiscal year ended February 3,1, 2024,2025, include:
•Net sales increased 4.7%10.4% to $17,565.8$19,395.7 million,million due to a 1.8%5.3% comparable store net sales increase and net sales of $1.1$1.4 billion at non-comparable stores. The 53rd week in fiscal 2023 accounted for $307.0 million of the total net sales.
•Gross profit increased 4.5%12.2% to $6,281.7$7,050.7 million asprimarily adue resultto ofthe 5.3% comparable store net sales increase, our net store growth.growth, and lower freight costs. Gross profit, as a percentage of net sales, remainedincreased unchanged60 inbasis fiscalpoints 2024to as the cost of sales rate is 64.2% in both fiscal 2024 and 2023.36.4%.
•Transition services agreement income, net was $54.9 million resulting from services provided to Family Dollar following the sale.
•Operating income, as a percentage of total revenues, decreasedincreased 23020 basis points to 8.3%.8.5%.
•The effective tax rate increasedwas to24.8%, 24.7%an increase of 10 basis points as compared to 23.8% in the prior year.
•Income from continuing operations was $1,225.3 million, or $5.94 per diluted share, compared to $1,042.5 million, or $4.83 per diluted share,share comparedin tothe $1,265.8prior million, or $5.76 per diluted share.year.
Store Activity &and Selected Sales Data
At FebruaryJanuary 1,31, 2025,2026, we operated stores in 48 states and the District of Columbia, as well as stores in fiveseven Canadian provinces. The average size of stores opened in fiscal 20242025 was approximately 10,9909,210 selling square feet. A breakdown of the changes in store count and square footage is as follows:
The store counts above do not include new stores until they are opened for sales. Similarly, stores converted from a Family Dollar store to a Dollar Tree store, or vice versa,store are reflected in the table above when they openedre-opened oras closed,a respectively.Dollar Tree store.
Fiscal 20242025 and fiscal 20222024, which ended on January 31, 2026 and February 1, 2025 and January 28, 2023,2025, respectively, each included 52 weeks. Fiscal 2023 ended on February 3, 2024 and included 53 weeks, commensurate with the retail calendar. The 53rd week in fiscal 2023 added approximately $307.0 million in sales.
Our net sales are derived from the sale of merchandise at new stores and at comparable stores. We use comparable store net sales to evaluate the performance of our existing stores from one year to the next. Comparable stores include only those stores that are open throughout both of the periods being compared, beginning after the first fifteen months of operation. We include sales from stores expanded, relocated or remodeled during the year in the calculation of comparable store net sales. Stores that were converted from Family Dollar stores to Dollar Tree stores are considered to be new stores and are not included in the calculation of the comparable store net sales change until after the first fifteen months of operation under the Dollar Tree brand. Additionally, sales that are excluded from the calculation of comparable store net sales are referred to as non-comparable store sales and consist of sales from new stores open fifteen months or less and stores that are closed permanently or expected to be closed for more than 90 days. Comparable store sales measures vary across the retail industry. As a result, our comparable store net sales calculation is not necessarily comparable to similarly titled measures reported by other companies.
Comparable store net sales are positively affected by our expanded, relocated and remodeled stores, which we include in the calculation, and are negatively affected when we open new stores or expand stores near existing stores. The comparable store net sales change for the years ended January 31, 2026 and February 1, 2025 and January 28, 2023 is based on a 52-week comparison for both periods included in the calculation. The comparable store net sales change for the year ended February 3, 2024 is based on a 53-week comparison for both periods included in the calculation.
We continue to execute on strategic initiatives to accelerate profitable growth for Dollar Tree as a standalone banner following the sale of Family Dollar. At our 2025 Investor Day held on October 15, 2025, we outlined our strategic plan that will help drive profitable sales growth: (i) expanding and enhancing our product assortment, (ii) managing costs with agility and discipline, (iii) strengthening our customer connection through data-driven marketing and other initiatives, (iv) opening new stores and improving store conditions, and (v) improving store operations and consistent execution to enhance the experience for our customers and our associates – all supported by supply chain enhancements, disciplined financial management, technology and investment in our people.
Expanded and Enhanced Assortment. A central pillar of our strategy is expanding and refining our multi-price assortment to deliver a broader, more relevant offering while preserving our foundational value proposition. Our multi-price strategy is designed to increase basket size and drive margin expansion by introducing complementary products, new categories, larger pack sizes, and select branded and licensed items that we could not historically offer under a single price point. As of January 31, 2026, we carried our expanded multi-price assortment in the majority of our stores. We are also expanding customer access through digital and delivery partnerships. In August 2025, we announced a nationwide partnership with Uber to bring the Uber Eats platform to our stores. As of January 31, 2026, over 8,800 Dollar Tree stores were serviceable through Uber Eats.
Agile Cost Management. We are implementing cost management strategies designed to mitigate cost pressures both in how we buy and distribute our products as well as the selling, general and administrative costs to support the business. Our merchandising approach includes five primary levers: renegotiating supplier terms, re-engineering products for efficiency, shifting country of origin where advantageous, discontinuing lower-margin or underperforming items, and executing targeted retail price adjustments when appropriate.
During fiscal 2025, the volatile tariff environment and the implementation of these mitigation strategies resulted in increased costs, including significant labor and other discrete costs related to price adjustments, which also impacted our net sales. The tariff environment remains fluid, and we expect our results to continue to be impacted by near-term challenges, potentially including higher costs due to increases or variability in tariffs. Further, we may experience implementation costs associated with our mitigation strategies that impact us before the benefits from those efforts are expected to materialize.
On February 20, 2026, the U.S. Supreme Court ruled that certain of the tariffs imposed last year under the International Emergency Economic Powers Act (“IEEPA”) were unlawful. We are taking action to preserve our rights to refunds for these IEEPA tariffs, but the availability, timing, and amount of any potential refunds remains highly uncertain and subject to further legal, regulatory, and administrative developments. Following the Supreme Court’s decision, the United States imposed new, temporary tariffs on imports from all countries under section 122 of the Trade Act of 1974 and could take action to invoke other laws to collect additional tariffs. There remains substantial uncertainty regarding the impacts of this decision on existing tariffs, the scope and duration of any newly announced tariffs, and the possibility of further additional or modified tariffs or retaliatory actions. As a result, our margins and operating results could vary significantly.
Beyond addressing the cost of goods sold, our strategy includes disciplined management of operating expenses. Following the sale of Family Dollar, we are reshaping our organization to align with the needs of the standalone Dollar Tree business, with a focus on operating leverage and scalable profitability. Our long-term objective includes reducing corporate selling, general and administrative expenses as a percentage of net sales through improved productivity, cost optimization, and right-sizing initiatives.
New Store Growth and Improved Conditions. We continue to expand our store footprint while investing to modernize and optimize our fleet. We operate more than 9,200 stores and believe we have ample opportunities for new store growth in the future, supported by disciplined site selection and capital allocation. Our modernization efforts include refresh and renovation programs, which are designed to improve the customer shopping experience.
Improved Store Operations. We are focused on improving store standards and operational consistency to enhance the in-store experience and optimize shelf productivity. These actions are intended to strengthen customer connection, increase traffic and basket size, and drive higher returns on invested capital.
Supply Chain Optimization. We are modernizing our distribution network to improve flexibility, speed, and efficiency, including investments in expanded and optimized distribution center capacity, enhanced warehouse management systems, transportation improvements, and selective automation initiatives.
In April 2025, we announced plans to return to Marietta, Oklahoma, with a new, enhanced distribution center expected to be fully operational by spring 2027, with capacity to serve approximately 700 stores across the West and Southwest regions. Reconstruction of the Marietta, Oklahoma distribution center commenced in September 2025.
In October 2025, we announced the purchase of a 1.25 million square foot distribution center outside Phoenix, Arizona, expected to open in spring 2026 and service stores in Arizona, Colorado, Nevada, New Mexico, and Utah. These investments are expected to support long-term growth and improve network resilience, though they may modestly impact gross margin in the near-to-mid term as capacity ramps up.
Technology Investment. We are executing a multi-year plan to modernize our technology platform, replacing legacy systems with integrated, real-time tools that we believe can enhance decision-making and operational agility. Key investments include enhancements to our human capital management systems, supply chain platforms, and data analytics capabilities. These initiatives are intended to improve productivity, enable test-and-learn capabilities, and support scalable growth.
Human Capital. Our more than 150,000 associates remain foundational to our strategy. We continue to invest in competitive pay and benefits, training, career development, and initiatives designed to reduce turnover and improve productivity. Since 2023, we have promoted tens of thousands of associates and advanced initiatives focused on making it easier to work in our stores through improved tools and processes.
Sale and Separation of Family Dollar. On July 5, 2025, we completed our previously announced sale of the Family Dollar business to 1959 Holdings, LLC. Total cash generated from the sale approximated $793 million, consisting of approximately $680 million of net proceeds, including from settlement of net working capital and net indebtedness, and approximately $113 million monetized primarily through a reduction of net working capital prior to the date of sale. The Company has continuing involvement with Family Dollar under a transition services agreement, through which the Company and Family Dollar continue to provide certain services to each other for a period of 18 months following the date of sale. For information on discontinued operations, refer to Note 2 to our consolidated financial statements under the caption “Assets Held for Sale and Discontinued Operations” and Note 15.
We continue to execute on a number of strategic initiatives to drive productive sales growth, improve operating efficiency, invest in technology, and expand our culture of service to our associates. These initiatives include, among others, and in no particular order, the following:
Dollar Tree Merchandising. We continue to expand our brand assortment at the $1.25 price point to provide greater value to our customers and increase customer traffic and store productivity. We are continuing to expand our multi-price product assortment, which began with the introduction of $3 and $5 products in select discretionary categories, expanded into $3, $4 and $5 frozen and refrigerated product, and now comprises a wide assortment of other consumable and discretionary product at varying price points. As of February 1, 2025, we had approximately 2,900 multi-price format stores, including approximately 2,600 conversions and 300 new stores.
99 Cents Only Stores Acquisition. During the second quarter of fiscal 2024, we acquired designation rights for up to 170 leases of 99 Cents Only Stores across Arizona, California, Nevada and Texas. The designation rights were acquired following the bankruptcy of 99 Cents Only Stores, which provided us an attractive opportunity to secure leases in priority markets. We secured the leases for 164 of these stores and substantially all have opened as Dollar Tree stores.
Our Workforce & Our Workplace. We are investing in our talent, including initiatives to provide competitive pay and benefits, enhanced training, and attractive career opportunities to deliver an enhanced associate experience, reduce turnover, and improve our store standards and efficiencies and ultimately the customer experience. Additional initiatives include projects to optimize and modernize our stores, with a focus on improving the in-store experience through renovations and customer service enhancements.
Supply Chain Optimization. Our supply chain initiatives include expanding and enhancing our distribution and transportation network, including investments in our truck fleet, transportation management systems, a new distribution center with enhanced automation to improve efficiency, and a new RotaCart delivery process to streamline the truck unloading and store delivery process. Significant investments are also underway to improve climate control conditions in our distribution centers. These investments are expected to negatively impact gross margin in the near-to-mid term.
Technology Investment. We continue our multi-year plan for significant investment in our technology across our business, including our mobile apps, human capital management system and supply chain system. We believe these improvements can promote operational efficiencies and deliver an elevated customer experience.
Marietta, Oklahoma Distribution Center. In the first quarter of fiscal 2024, a tornado destroyed our distribution center in Marietta, Oklahoma. Based on the significant damage sustained by the facility, the inventory contained in the facility and the facility itself are not salvageable. We have pivoted our supply chain network to deliver products to the approximately 600 Marietta-serviced stores, and we believe these efforts have limited and will continue to limit disruption to the Dollar Tree shopping experience. We are incurring additional costs within our supply chain as a result of servicing these impacted stores, including additional stem miles for delivered product and outside storage, and expect such costs to continue negatively impacting gross margin in the near-to-mid term.
General Liability Claims Development. Our self-insured general liability claims related to customer accidents and other incidents at our stores continue to develop unfavorably due to the rising costs to reimburse, settle, or litigate the claims. As a result, our actuarially determined liabilities were increased during the second quarter of fiscal 2024, contributing to a $45.3 million increase in our general liability claim expenses compared to the prior year second quarter. For the full year, fiscal 2024 general liability claim expenses increased $20.4 million compared to fiscal 2023.
The liabilities related to our self-insurance programs, which include general liability claims, are estimates that require judgment and the use of assumptions. See the “Critical Accounting Estimates and Assumptions” later in this “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information on the estimates and assumptions related to these liabilities. Such estimates are inherently uncertain, and future changes in claim trends and assumptions could result in significant adjustments to our liabilities, which could materially and adversely affect our results of operations.
Family Dollar Store Portfolio Optimization and Strategic Alternatives Reviews. During the fourth quarter of fiscal 2023, we announced that we had initiated a comprehensive store portfolio optimization review, which involved identifying stores for closure, relocation or re-bannering based on an evaluation of current market conditions and individual store performance, among other factors. As a result of the portfolio optimization review, we identified approximately 970 underperforming Family Dollar stores, including approximately 600 stores to be closed in the first half of fiscal 2024, and approximately 370 stores to be closed at the end of each store's current lease term. As of February 1, 2025, we had closed approximately 695 stores identified under the portfolio optimization review.
During the second quarter of fiscal 2024, we announced that we had initiated a formal review of strategic alternatives for the Family Dollar business, which could have included among others, a potential sale, spin-off or other disposition of the business. This strategic alternatives review concluded in the fourth quarter of fiscal 2024 and resulted in the decision to sell the Family Dollar business. As a result, we concluded the Family Dollar business met the held for sale and discontinued operations accounting criteria. On March 25, 2025, the Company entered into a definitive agreement to sell the Family Dollar business to Brigade Capital Management, LP and Macellum Capital Management, LLC, for a purchase consideration of $1,007.0 million, subject to a number of adjustments, including with respect to working capital and net indebtedness. The closing of the transaction is subject to satisfaction of customary closing conditions, including receipt of U.S. antitrust approval. Net proceeds are estimated to total approximately $804.0 million. For information on discontinued operations, refer to Note 2 to our consolidated financial statements under the caption “Assets Held for Sale and Discontinued Operations” and Note 15.
The increase in net sales from fiscal 20232024 to fiscal 20242025 was a result of the comparable store net sales increase and net sales of $1.1$1.4 billion at non-comparable stores. Comparable store net sales increased 1.8%5.3% in fiscal 2024,2025, as a result of a 1.6%4.3% increase in average ticket and a 1.0% increase in customer traffictraffic. and a 0.1%The increase in average ticket.ticket Thiswas increaseprimarily isthe basedresult onof targeted retail price changes executed during the second and third quarters of fiscal year 2025 and increased multi-price penetration. As a 52-week comparison for both periods. The 53rd week in fiscal 2023 accounted for $307.0 millionresult of the totalretail netprice sales.changes, customer traffic was negatively impacted and declined in the third and fourth quarters of fiscal 2025.
The low single-digit comparable store net sales increase was primarily impacted by the macro economic environment which continues to affect our customers due to the impact of inflationary pressures and higher interest rates. We expect these sales trends, and the resulting negative impact on operating income, to continue in the near-to-mid term.
The increase in net sales from fiscal 2022 to fiscal 2023 was a result of the comparable store net sales increase and net sales of $467.1 million at non-comparable stores. Comparable store net sales increased 5.8% in fiscal 2023, as a result of a 7.4% increase in customer traffic, partially offset by a 1.5% decrease in average ticket. This increase is based on a 53-week comparison for both periods. The 53rd week in fiscal 2023 accounted for $307.0 million of the total net sales increase.
Gross profit margin remained unchangedincreased in fiscal 20242025 asdue theto a 60 basis point decrease in cost of sales. The cost of sales rate isdecreased to 63.6% in fiscal 2025 from 64.2% in both fiscal 2024 primarily due to improved mark-on from pricing initiatives, lower domestic and 2023. Changes in the cost of sales rates consist of lowerimport freight costs, offsetfavorable bysales mix resulting from increased sales of higher costmargin consumablediscretionary merchandise,merchandise increasedas a percentage of net sales, and lower occupancy costs resultingdue from the loss ofto leverage from the low single-digit comparable store net sales increaseincrease, andpartially theoffset 53rd week of sales in 2023,by higher distributiontariff costs, increasedhigher shrinkmarkdowns, costshigher resulting from unfavorable inventory results,shrink, and increased markdowndistribution costs forexpense. slowThe movinghigher items.markdowns in fiscal 2025 include a $56.0 million write-off of various slow-turning SKUs. This reflects actions taken related to our ongoing strategic initiative to increase shelf space productivity, as discussed within “Strategic Initiatives and Recent Developments” above. Included in freight costs for fiscal 2024 is $25.0 million of duties related to an anti-dumping case for paper plates imported in fiscal 2024.
Gross profit margin decreased in fiscal 2023 due to a 170 basis point increase in cost of sales. The cost of sales rate increased to 64.2% in fiscal 2023 from 62.5% in fiscal 2022 primarily due to re-investment in value-product assortments after transitioning to the $1.25 price point during the prior year, increased sales of higher cost consumable merchandise, higher distribution costs, increased shrink costs resulting from unfavorable inventory results, partially offset by lower freight costs and decreased occupancy costs resulting from the leverage from the comparable store net sales increase and leverage from the 53rd week of sales in 2023.
The selling, general and administrative expense rate increased 22070 basis points in fiscal 20242025 primarily due to higher store payroll in support of our pricing initiatives and from wage increases, higher incentive compensation, higher depreciation expense from store investments, softwareand impairmentsunfavorable development of general liability claims, partially offset by lower stock compensation, lower impairment costs, lower corporate payroll, and relatedleverage contractfrom terminationthe costs,comparable temporarystore labornet tosales supportincrease. ourFiscal multi-price2024 rollout, higher utilities costs,included higher stock compensation expense resulting from the accelerated vesting of the former Chief Executive Officer’s option award, the loss of leverage from the low single-digit comparable store net sales increaseaward and the loss of leverage from the 53rd week of sales in the prior year. The software impairments and related contract termination costs totaledtotaling $58.0 million and were related to enterprise merchandising and store system projects that were not fully implemented and were cancelled in connection with the decision to sell the Family Dollar business.
Transition Services Agreement Income, Net
Transition services agreement income, net was $54.9 million in fiscal 2025 resulting from services provided to Family Dollar following the sale.
The selling, general and administrative expense rate increased 140 basis points in fiscal 2023 primarily due to wage investments and minimum wage increases in store payroll, unfavorable development of general liability claims, and higher repairs and maintenance expenses as we focus on store conditions for our customers and associates, partially offset by leverage from the comparable store net sales increase and leverage from the 53rd week of sales at the end of fiscal 2023.
Operating income margin decreased to 8.3% in fiscal 2024 compared to 10.6% in fiscal 2023, resulting from the increase in the selling, general and administrative expense rate.
Operating income margin decreasedincreased to 10.6%8.5% in fiscal 20232025 compared to 13.6%8.3% in fiscal 2022,2024, resulting from the decreaseincrease in gross profit margin as described above, and anincome from the transition services agreement with Family Dollar, partially offset by the increase in the selling, general and administrative expense rate.
Interest expense, net decreased $5.0$22.0 million in fiscal 20242025 compared to the prior year, primarily due to the repayment of our $1.0 billion principal amount of 4.00% Senior Notes in the second quarter of fiscal 2025, and higher interest income on investments.investments, partially offset by higher borrowings of commercial paper.
Other (Income) Expense, Net
Other income, net increased $32.8 million in fiscal 2025 compared to the prior year, primarily due to a higher insurance gain recognized in fiscal 2025 for the excess of the insurance proceeds received over the losses incurred for damaged property and equipment and damaged inventory associated with the tornado that destroyed our Marietta, Oklahoma Dollar Tree distribution center. The insurance gain recognized in fiscal 2025 totaled $62.0 million compared to $30.0 million in fiscal 2024.
Interest expense, net decreased $14.7 million in fiscal 2023 compared to the prior year, primarily due to higher interest income on investments.
The effective tax rate for fiscal 2024 was 24.7% compared to 23.8% for fiscal 2023, resulting primarily from higher non-deductible executive compensation, increased tax expense in the current year related to restricted stock vesting and lower Work Opportunity Tax Credits.
The effective tax rate for fiscal 20232025 was 23.8%24.8% compared to 23.9%24.7% for fiscal 2022, resulting2024, primarily due to an increase in expected state taxes and reduced benefits from higherthe Workvesting Opportunityof Taxshare-based Credits,payment awards, partially offset by highera tax expensedecrease in thenon-deductible current year related to restricted stock vesting.compensation.
What changed in the latest 10-Q
Risk Factors
There have been no material changes to the risk factors described in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended January 31, 2026, other than as set forth in the discussion of certain items that have impacted or could impact our business or results of operations during 2026 or in the future as disclosed in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q.
No wording changes found in this section.
Full comparison: every changed paragraph (0)
Management's Discussion & Analysis (MD&A)
Largest changes
“The selling, general and administrative expense rate increased 10 basis points during the 26 weeks ended August 1, 2026 primarily due to increased investments in marketing including costs related to our tariff reinvestment initiative, higher general liability claims costs, and higher depreciation expense from store investments, partially offset by lower payroll expenses and consulting fees. …”see in full comparison
The selling, general and administrative expense ratesee in full comparisonincreaseddecreased5040 basis points during the 13 weeks endedMayAugust2,1, 2026 primarily due to lower payroll expenses and lower consulting fees, partially offset by increased investments inmarketing,marketinghigherincludinggeneralcostsliabilityrelatedclaimstocosts,our tariff reinvestment initiative, and higher depreciation expense from storeinvestments, partially offset by lower payroll expenses.investments. Payroll expenses decreased primarily due to lower store payroll as the labor needed to support our pricing initiatives in fiscal 2025 did not re-occur, lower temporary labor used to support our multi-pricerollout,rollout and lower corporatepayroll and incentive compensation,payroll, partially offset byhigheradditionalstorelaborpayrollincurredfromforwageourincreases.tariff reinvestment initiatives. Selling, general and administrative expenses include costs to support the transition services agreement with Family Dollar.
“On February 20, 2026, the U.S. Supreme Court ruled that certain of the tariffs imposed last year under the International Emergency Economic Powers Act (“IEEPA”) were unlawful. In April 2026, the U.S. Customs and Border Protection launched a platform for submitting IEEPA tariff refund claims. We are taking action to preserve our rights to refunds for these IEEPA tariffs and have submitted refund claims. Subsequent to May 2, 2026, we began receiving refunds for IEEPA tariffs previously paid, totaling approximately $110 million through May 26, 2026, including $6 million of interest. …”see in full comparison
“In addition, the tariff environment remains fluid. On February 20, 2026, the U.S. Supreme Court ruled that certain of the tariffs imposed in fiscal 2025 under the International Emergency Economic Powers Act (“IEEPA”) were unlawful and remanded the case to the U.S. Court of International Trade (“CIT”) to provide a remedy for importers who had paid the tariffs. On March 4, 2026, the CIT ordered U.S. Customs and Border Protection (“CBP”) to begin refunding all tariffs imposed under IEEPA. On April 20, 2026, CBP launched a process for importers to submit IEEPA refund claims. …”see in full comparison
“During the second quarter, we began to reinvest certain of these proceeds in a number of initiatives designed to strengthen our business. We expect to reinvest a significant portion of the total tariff refunds in these initiatives over the remainder of 2026. For instance, we plan to direct approximately $40 million of these proceeds to a philanthropic fund that supports our associates and the communities served by our business. …”see in full comparison
“Gross profit margin increased during the 26 weeks ended August 1, 2026 due to a 480 basis point decrease in cost of sales. The cost of sales rate decreased to 60.2% during the 26 weeks ended August 1, 2026 from 65.0% during the same period last year primarily due to a 375 basis point benefit from the receipt of $368.7 million in tariff refunds, pricing initiatives executed during the second and third quarters of fiscal 2025, lower shrink from favorable inventory count results, and lower import freight costs, partially offset by higher tariff costs, higher markdowns including approximately $22. …”see in full comparison
Full comparison: every changed paragraph (48)
•Our plans and expectations regarding our current and future strategic initiatives, including our operational strategy for Dollar Tree as a standalone business following the sale of Family DollarDollar, and the reinvestment of certain tariff refunds in our business;
•Our profitability is vulnerable to cost pressures from increases in merchandise, shipping, freightfreight, fuel and fuel,energy, wages,raw benefitsmaterial, wage and benefit, and other operating costs.
•Changes in economic conditions such as inflation, fuel prices, or interest rates, the availability of merchandise, helium or other raw materials, or the competition for and availability of qualified personnel, or consumer spending habits, could impact our sales or profitability.
•We may not be successful in executing or achieving the anticipated benefits of our reinvestment of tariff refunds or other important strategic initiatives, which may have an adverse impact on our business and financial results.
•Current and potential competitors could have more significant online and mobile shopping platforms or other advances in technologies and capabilities (including artificial intelligence) than we currently do, which could impair our ability to compete effectively and adversely affect our results of operations.
WeExcept as otherwise required by law, we do not undertake to publicly update or revise any forward-looking statements after the date of this Quarterly Report on Form 10-Q, whether as a result of new information, future events, or otherwise.
Financial highlights for the 13 weeks ended MayAugust 2,1, 2026, as compared to the 13 weeks ended MayAugust 3,2, 2025, include:
•Gross profit increased 10.9%33.4% to $1,829.5$2,094.3 million primarily due to ourthe netreceipt storeof growth,$368.7 million of tariff refunds, the 3.5%3.7% comparable store net sales increase, our net store growth, lower tariff costs and a 120 basis point improvementimprovements in gross profit margin.shrink.
•Selling, general and administrative expenses, as a percentage of total revenue, increaseddecreased 5040 basis points to 27.8%.29.2%.
•Transition services agreement income, net was $21.1$17.7 million compared to $8.0 million in the prior year quarter, resulting from services provided to Family Dollar following the sale.
At MayAugust 2,1, 2026, we operated stores in 48 states and the District of Columbia, as well as stores in seven Canadian provinces. The average size of stores opened during the 1326 weeks ended MayAugust 2,1, 2026 was approximately 9,2309,170 selling square feet. A breakdown of the changes in store count and square footage is as follows:
Net sales per selling square foot for the 52 weeks ended MayAugust 2,1, 2026 and MayAugust 3,2, 2025 is as follows:
In addition, the tariff environment remains fluid. On February 20, 2026, the U.S. Supreme Court ruled that certain of the tariffs imposed in fiscal 2025 under the International Emergency Economic Powers Act (“IEEPA”) were unlawful and remanded the case to the U.S. Court of International Trade (“CIT”) to provide a remedy for importers who had paid the tariffs. On March 4, 2026, the CIT ordered U.S. Customs and Border Protection (“CBP”) to begin refunding all tariffs imposed under IEEPA. On April 20, 2026, CBP launched a process for importers to submit IEEPA refund claims. The Company submitted claims for refunds totaling $379 million in April 2026. In the second quarter of fiscal 2026, the Company began receiving refunds for IEEPA tariffs previously paid, totaling approximately $369 million, plus $14 million of interest. Approximately $369 million is reflected within “Cost of sales,” and the interest is reflected within “Other income, net” in the accompanying unaudited Condensed Consolidated Income Statements. We do not expect the amounts of the remaining refunds of IEEPA tariffs to be material.
During the second quarter, we began to reinvest certain of these proceeds in a number of initiatives designed to strengthen our business. We expect to reinvest a significant portion of the total tariff refunds in these initiatives over the remainder of 2026. For instance, we plan to direct approximately $40 million of these proceeds to a philanthropic fund that supports our associates and the communities served by our business. Consistent with our strategic initiatives noted below, we also are using a portion of these proceeds to strengthen customer value and reinforce our core brand promise—value, convenience, and discovery—including targeted pricing strategies, customer messaging and marketing, and incremental improvements in store conditions and operations. While we believe the reinvestment of tariff refunds is important to our business, there is no certainty that we will achieve the anticipated benefits, impacts or timing of these reinvestments or our strategic initiatives generally.
The U.S. has continued to announce new tariffs on various imported products during 2026, and there remains substantial uncertainty regarding the outcome of legal challenges to tariffs, the scope and duration of any newly announced tariffs, and the possibility of further additional or modified tariffs or other measures. As a result, our margins and operating results could vary significantly.
Expanded and Enhanced Assortment. A central pillar of our strategy is expanding and refining our multi-price assortment to deliver a broader, more relevant offering while preserving our foundational value proposition. Our multi-price strategy is designed to increase basket size and drive margin expansion by introducing complementary products, new categories, larger pack sizes, and select branded and licensed items that we could not historically offer under a single price point. As of MayAugust 2,1, 2026, we carried our expanded multi-price assortment in the substantial majority of our stores. We are also expanding customer access through digital and delivery partnerships, such as Instacart, Uber Eats.Eats and Door Dash.
The tariff environment remains fluid, and we expect our results to continue to be impacted by near-term challenges, potentially including higher costs due to increases or variability in tariffs. Further, we may continue to experience implementation costs associated with our mitigation strategies that impact us before the benefits from those efforts are expected to materialize.
On February 20, 2026, the U.S. Supreme Court ruled that certain of the tariffs imposed last year under the International Emergency Economic Powers Act (“IEEPA”) were unlawful. In April 2026, the U.S. Customs and Border Protection launched a platform for submitting IEEPA tariff refund claims. We are taking action to preserve our rights to refunds for these IEEPA tariffs and have submitted refund claims. Subsequent to May 2, 2026, we began receiving refunds for IEEPA tariffs previously paid, totaling approximately $110 million through May 26, 2026, including $6 million of interest. Following the Supreme Court’s decision, the United States imposed new, temporary tariffs on imports from all countries under section 122 of the Trade Act of 1974 and could take action to invoke other laws to collect additional tariffs. In May 2026, the U.S. Court of International Trade invalidated these section 122 tariffs. There remains substantial uncertainty regarding the impacts of these events on existing tariffs, the scope and duration of any newly announced tariffs, and the possibility of further additional or modified tariffs or retaliatory actions. As a result, our margins and operating results could vary significantly.
In October 2025, we announced the purchase of a distribution center outside Phoenix, Arizona. OnIn May 13, 2026, we celebrated the grand opening of this 1.0 million square foot facility with outbound deliveries to begin in June 2026, shipping to approximately 700 stores across Arizona, Colorado, Nevada, New Mexico, and Utah. These investments are expected to support long-term growth and improve network resilience, though they may modestly impact gross margin in the near-to-mid term as capacity ramps up.
The following table contains results of operations data for the 13 and 26 weeks ended MayAugust 2,1, 2026 and MayAugust 3,2, 2025:
The increase in net sales in the 13 weeks ended MayAugust 2,1, 2026 was primarily the result of the comparable store net sales increase and net sales of $259.0$225.9 million at non-comparable stores. Comparable store net sales increased 3.5%3.7% in the 13 weeks ended MayAugust 2,1, 2026, as a result of a 4.5%3.3% increase in average ticket,ticket partially offset byand a 1.0%0.4% decreaseincrease in customer traffic. The increase in average ticket was as a result of targeted retail price changes executed during the second and third quarters of fiscal year 2025 and higher mix of multi-price penetration.
The increase in net sales in the 26 weeks ended August 1, 2026 was primarily the result of the comparable store net sales increase and net sales of $493.6 million at non-comparable stores. Comparable store net sales increased 3.6% in the 26 weeks ended August 1, 2026, as a result of a 3.9% increase in average ticket, partially offset by a 0.3% decrease in customer traffic. The increase in average ticket was as a result of targeted retail price changes executed during the second and third quarters of fiscal year 2025 and higher mix of multi-price penetration.
In addition, global helium supply shortages negatively impacted sales during the second quarter and could continue to impact our results in the future.
Gross profit margin increased during the 13 weeks ended MayAugust 2,1, 2026 due to aan 120850 basis point decrease in cost of sales. The cost of sales rate decreased to 63.2%57.1% during the 13 weeks ended MayAugust 2,1, 2026 from 64.4%65.6% during the same period last year primarily due to improveda mark-on755 basis point benefit from pricing initiatives executed during the second and third quartersreceipt of fiscal$368.7 yearmillion 2025,in tariff refunds, lower import freighttariff costs, and lower shrink from favorable inventory count results, and occupancy cost leverage, partially offset by higher markdowns including approximately $22.0 million related to our tariff costsreinvestment initiative, a $13.0 million charge recorded for antidumping and highercountervailing markdowns.duties related to the imports of paper plates and aluminum pans, and unfavorable sales mix resulting from lower sales of high margin discretionary merchandise.
Gross profit margin increased during the 26 weeks ended August 1, 2026 due to a 480 basis point decrease in cost of sales. The cost of sales rate decreased to 60.2% during the 26 weeks ended August 1, 2026 from 65.0% during the same period last year primarily due to a 375 basis point benefit from the receipt of $368.7 million in tariff refunds, pricing initiatives executed during the second and third quarters of fiscal 2025, lower shrink from favorable inventory count results, and lower import freight costs, partially offset by higher tariff costs, higher markdowns including approximately $22.0 million related to our tariff reinvestment initiative, and a $13.0 million charge recorded for antidumping and countervailing duties related to the imports of paper plates and aluminum pans.
We expect additional costs to be incurred in the third and fourth quarters of fiscal 2026 related to our tariff refund reinvestment initiatives including additional markdowns, as well as higher freight expenses.
The selling, general and administrative expense rate increaseddecreased 5040 basis points during the 13 weeks ended MayAugust 2,1, 2026 primarily due to lower payroll expenses and lower consulting fees, partially offset by increased investments in marketing,marketing higherincluding generalcosts liabilityrelated claimsto costs,our tariff reinvestment initiative, and higher depreciation expense from store investments, partially offset by lower payroll expenses.investments. Payroll expenses decreased primarily due to lower store payroll as the labor needed to support our pricing initiatives in fiscal 2025 did not re-occur, lower temporary labor used to support our multi-price rollout,rollout and lower corporate payroll and incentive compensation,payroll, partially offset by higheradditional storelabor payrollincurred fromfor wageour increases.tariff reinvestment initiatives. Selling, general and administrative expenses include costs to support the transition services agreement with Family Dollar.
The selling, general and administrative expense rate increased 10 basis points during the 26 weeks ended August 1, 2026 primarily due to increased investments in marketing including costs related to our tariff reinvestment initiative, higher general liability claims costs, and higher depreciation expense from store investments, partially offset by lower payroll expenses and consulting fees. Payroll expenses decreased primarily due to lower store payroll as the labor needed to support our pricing initiatives in fiscal 2025 did not re-occur, lower temporary labor used to support our multi-price rollout and lower corporate payroll, partially offset by wage increases and additional labor incurred for our tariff reinvestment initiatives. Selling, general and administrative expenses include costs to support the transition services agreement with Family Dollar.
We expect additional expenses to be incurred in the third and fourth quarters of fiscal 2026 related to our tariff refund reinvestment initiatives.
Transition services agreement income, net was $21.1$17.7 million in the 13 weeks ended MayAugust 2,1, 2026 and $8.0 million in the same period last year, resulting from services provided to Family Dollar following the sale.
Transition services agreement income, net was $38.8 million in the 26 weeks ended August 1, 2026 and $8.0 million in the same period last year, resulting from services provided to Family Dollar following the sale.
Operating income margin increased to 9.5%14.1% for the 13 weeks ended MayAugust 2,1, 2026 compared to 8.3%5.1% for the same period last year, resulting from the increase in gross profit margin and the decrease in the selling, general and administrative expense rate as described above, and net income from the transition services agreement with Family Dollar, partially offset by the increase in the selling, general and administrative expense rate.Dollar.
Operating income margin increased to 11.8% for the 26 weeks ended August 1, 2026 compared to 6.7% for the same period last year, resulting from the increase in gross profit margin as described above, and net income from the transition services agreement with Family Dollar, partially offset by the marginal increase in the selling, general and administrative expense rate.
Interest expense, net decreased $6.4$5.0 million in the 13 weeks ended MayAugust 2,1, 2026 compared to the same period last year, primarily due to thelower repaymentborrowings ofunder our $1.0commercial billionpaper principal amount of 4.00% Senior Notes in the second quarter of fiscal 2025,program, partially offset by lower interest income on investments, and interest on our new $500 million Term Loan.
Interest expense, net decreased $11.4 million in the 26 weeks ended August 1, 2026 compared to the same period last year, primarily due to the repayment of our $1.0 billion principal amount of 4.00% Senior Notes in the second quarter of fiscal 2025, and lower borrowings under our commercial paper program, partially offset by interest on our new $500 million Term Loan.
Other income, net increased $13.7 million in the 13 weeks ended August 1, 2026 compared to the same period last year, primarily due to interest of $14 million received in the current year for tariff refunds.
Other income, net decreased $56.3$42.6 million in the 1326 weeks ended MayAugust 2,1, 2026 compared to the same period last year, primarily due to a higher insurance gain recognized in the prior year for the excess of the insurance proceeds received over the losses incurred for damaged property and equipment and damaged inventory associated with the tornado that destroyed our Marietta, Oklahoma Dollar Tree distribution center.center, partially offset by interest of $14 million received in the current year for tariff refunds. The insurance gain recognized in the first quarter of fiscal 2026 totaled $5.2 million compared to $62.0 million in fiscal 2025.
The effective tax rate decreased to 24.9%25.0% for the 13 weeks ended MayAugust 2,1, 2026 compared to 25.9%25.5% for the comparable prior year period, primarily due to increaseddecreased benefitspermanent fromitems theand vestinghigher ofpre-tax share-based payment awards,income, partially offset by an increase in expected state taxes and lower Work Opportunity Tax credits.
The effective tax rate decreased to 25.0% for the 26 weeks ended August 1, 2026 compared to 25.8% for the comparable prior year period, primarily due to increased benefits from the vesting of share-based payment awards, partially offset by an increase in expected state taxes and lower Work Opportunity Tax credits.
We invest capital to build and open new stores, expand and renovate existing stores, enhance and grow our distribution network, operate our existing stores, maintain and upgrade our technology, and support our other strategic initiatives. Our working capital requirements for existing stores are seasonal in nature and typically reach their peak in the months of September and October. We have satisfied our seasonal working capital requirements for existing and new stores and have funded our distribution network programs and other capital projects from internally generated funds and borrowings under our credit facilities and commercial paper program.
The following table compares our cash flows for the 1326 weeks ended MayAugust 2,1, 2026 and MayAugust 3,2, 2025:
Net cash provided by operating activities increased $265.5$926.3 million primarily due to higher income from continuing operations, net of non-cash items, including the receipt of $383 million of tariff refunds, increases in accounts payable in the current year compared to decreases in the prior year, lower income tax payments in the current year, and reductions in merchandise inventories compared to a prior year increase. The changeschange in accounts payable and merchandise inventories werewas primarily due to the timing of certain payments and inventoryreceipts receipts.as well as our ongoing strategic initiative to improve shelf space productivity. The reduction in income tax payments in the current year is a result of tax benefits realized from losses on the sale of Family Dollar in fiscal 2025.
Net cash used in investing activities increased $54.0$478.6 million primarily due to no property and equipment-related insurance proceeds received in the current year compared to $50.0$668.0 million inof insurancenet proceeds received in the prior year relatedfrom tothe sale of Family Dollar, and lower insurance recoveries for damaged property and equipment at our Dollar Tree distribution center in Marietta, OklahomaOklahoma, aspartially discussedoffset inby Notecash 3divested tofrom the unauditedsale condensedof consolidatedFamily financialDollar statementsof included$246.0 elsewhere in this Quarterly Report on Form 10-Q.million. Capital expenditures were relatively unchanged from the prior year as we continue to invest in opening new stores and our supply chain network including the construction at our new distribution centers in Phoenix, Arizona and Marietta, Oklahoma.
Net cash used in financing activities decreased $338.5$912.2 million primarily due to $500.0 million in proceeds from our Term Loan,Loan in the current year and the repayment of our $1.0 billion principal amount of 4.00% Senior Notes in the prior year, partially offset by higher share repurchases in the current year.year and lower borrowings under our commercial paper program.
At MayAugust 2,1, 2026, our long-term borrowings were $3.0 billion, including our new $500.0 million Term Loan which we entered into on March 19, 2026 as discussed further in Note 4 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Additionally, we had $1.5 billion available under our Five-Year Credit Facility, as well as borrowing capacity under our commercial paper program. Further, on March 20, 2026, the existing $1.0 billion 364-Day Revolving Credit Facility expired and all commitments thereunder were terminated. In connection with the maturity of the 364-Day Revolving Credit Facility on March 20, 2026, we decreased the size of our commercial paper program, with the issuance of commercial paper notes limited to a maximum aggregate amount outstanding at any time of $1.5 billion, compared to the previous maximum permitted of $2.5 billion. The $1.5 billion Five-Year Credit Facility serves as a liquidity backstop for the repayment of notes outstanding under the commercial paper program. At MayAugust 2,1, 2026, we had no borrowings outstanding under our Five-Year Credit Facility or our commercial paper program. We also havehad $85.0 million in trade letters of credit with various financial institutions, under which $2.6$2.5 million was committed to letters of credit issued for routine purchases of imported merchandise as of MayAugust 2,1, 2026.
We repurchased 5,552,41011,136,764 shares of common stock on the open market and 5,926,985in a block trade transaction at a cost of $1.2 billion, including applicable excise tax, during the 26 weeks ended August 1, 2026. We repurchased 10,957,077 shares of common stock on the open market at a cost of $600.4 million and $436.8$938.2 million, including applicable excise tax, during the 1326 weeks ended MayAugust 2, 2026 and May 3, 2025, respectively.2025. Of the shares repurchased during the 1326 weeks ended MayAugust 2,1, 2026 and MayAugust 3,2, 2025, $18.0$0.5 million and $5.0$5.5 million, respectively, settled subsequent to MayAugust 2,1, 2026 and MayAugust 3,2, 2025, respectively, and these amounts were accrued in the accompanying unaudited Condensed Consolidated Balance Sheets. At May 2, 2026, we had $1.3 billion remaining under our existing $2.5 billion Board repurchase authorization.
In June 2026, we repurchased $500.0 million of our common stock as part of a block trade involving selling stockholders including certain funds affiliated with Mantle Ridge LP which is reflected in the current year share repurchase activity above. In July 2026, our Board of Directors replenished our share repurchase authorization to an aggregate amount of $2.5 billion, consistent with the authorization limit previously approved by the Board in July 2025. At August 1, 2026, we had $2.49 billion remaining under the $2.5 billion Board repurchase authorization.
Subsequent to MayAugust 2,1, 2026, we purchased an additional 1,031,56941,412 shares of common stock on the open market at a cost of $98.0$5.3 million,million as of MayAugust 26,25, 2026.
DLTR insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 0 Form 4 filings and open-market sales in 3 filings (3 insiders, 3 trade dates, 2,234,140 shares, about $248.7M). Net open-market shares: -2,234,140 (purchases minus sales); net value about -$248.7M.Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-09-04 | Stahl Stephanie |
Open-market sale | 1,185 | $131.47 | $155.8K |
| 2026-08-31 | Aflatooni Robert |
Open-market sale | 2,500 | $126.01 | $315.0K |
| 2026-08-02 | Maheshwari Aditya |
Shares withheld for tax | 127 | $127.21 | $16.2K |
| 2026-08-01 | Stahl Stephanie |
Conversion | 1,185 | — | — |
| 2026-07-05 | Schumacher Steven |
Shares withheld for tax | 282 | $124.05 | $35.0K |
| 2026-07-01 | Grise Cheryl W |
Grant/award | 1,238 | $121.15 | $150.0K |
| 2026-07-01 | Johnson Timothy A |
Grant/award | 1,238 | $121.15 | $150.0K |
| 2026-07-01 | Randolph Diane |
Grant/award | 1,238 | $121.15 | $150.0K |
| 2026-07-01 | Randolph Diane |
Conversion | 1,398 | — | — |
| 2026-07-01 | Heinrich Daniel J |
Grant/award | 1,238 | $121.15 | $150.0K |
| 2026-06-24 | Hilal Paul C |
Other | 10,266,164 | — | — |
| 2026-06-24 | Hilal Paul C |
Open-market sale | 2,230,455 | $111.31 | $248.3M |
| 2026-06-24 | Hilal Paul C |
Conversion | 602,170 | — | — |
Well-known investors holding DLTR (13F)
| Investor | Quarter | Shares | Reported value | % of their 13F | Change vs prior quarter |
|---|---|---|---|---|---|
| PRIMECAP Management | 2026-06-30 | 3,768,875 | $455.8M | 0.27% | Added 1% |
| Citadel Advisors (Ken Griffin) | 2026-06-30 | 2,512,682 | $303.9M | 0.17% | Added 246% |
| AQR Capital Management (Cliff Asness) | 2026-06-30 | 1,305,455 | $156.6M | 0.05% | Reduced 5% |
| Millennium Management (Israel Englander) | 2026-06-30 | 681,366 | $82.4M | 0.06% | Added 64% |
| Semper Augustus (Chris Bloomstran) | 2026-06-30 | 530,113 | $64.1M | 7.25% | Added 3% |
| Gotham Asset Management (Joel Greenblatt) | 2026-06-30 | 489,796 | $59.2M | 0.14% | Added 23% |
| Bridgewater Associates | 2026-06-30 | 315,855 | $38.2M | 0.16% | Added 1225% |
| D. E. Shaw & Co. | 2026-06-30 | 196,331 | $23.7M | 0.01% | Added 16% |
| Renaissance Technologies | 2026-06-30 | 170,403 | $20.6M | 0.03% | Added 1181% |
| Two Sigma Investments | 2026-06-30 | 15,538 | $1.9M | 0.0% | Reduced 44% |