On Thursday, Dollar Tree (NASDAQ:DLTR) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
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Summary
Dollar Tree’s total sales increased by 7.2% and comparable sales rose by 3.5% in Q1 2026, driven by strong ticket and traffic trends.
Adjusted earnings per share grew 38% year over year to $1.74, exceeding the company’s outlook range.
The company is focused on strategic initiatives including expanding its multiprice assortment, improving store conditions, and enhancing marketing capabilities to drive customer engagement.
Dollar Tree is observing trade-in behavior from higher-income customers and plans to leverage its value proposition amid macroeconomic uncertainties.
Traffic trends showed improvement, and the company remains confident in continued traffic recovery, supported by operational initiatives and strategic pricing actions.
Full Transcript
OPERATOR
Greetings and welcome to the Dollar Tree Q1 2026 earnings conference call and webcast. At this time all participants are in listen only mode. A question and answer session will follow the formal presentation. You may be placed into question queue at any time by pressing Star1 on your telephone keypad and we ask that you please ask one question one follow up, then return to the queue. As a reminder, this conference is being recorded. If anyone should require operator assistance, please press Star zero. It’s now my pleasure to turn the call over to Daniel Del Rosario, Senior Vice President, Investor Relations and Treasurer. Daniel, please go ahead.
Daniel Del Rosario (Senior Vice President, Investor Relations and Treasurer)
Thank you operator Good morning, everyone and thank you for joining us today to discuss Dollar Tree’s first quarter fiscal 2026 results. With me today are Dollar Tree’s CEO Mike Creeden and CFO Stuart Glendinning. Before we begin, I would like to remind everyone some of the remarks that we make today about the Company’s expectations, plans and future prospects are considered forward looking statements under the Safe harbor provision of the Private Securities Litigation Reform act of 1995. These statements are subject to risks and uncertainties which could cause actual results to differ materially from those contemplated by our forward looking statements. For information on the risks and uncertainties that could affect our actual results, please see the Risk Factors, Business and Management’s Discussion and Analysis of Financial Condition and Results of Operations section in our Annual report on Form 10-K filed on March 16, 2026, our most recent press release and Form 8K and other filings with the SEC. We caution against reliance on any forward looking statements made today and we disclaim any obligation to update any forward looking statements except as required by law. Also, during this call we will discuss certain non Generally Accepted Accounting Principles (GAAP) financial measures. Reconciliations of these non Generally Accepted Accounting Principles (GAAP) items to the most directly comparable Generally Accepted Accounting Principles (GAAP) financial measures are provided in today’s earnings release available on the IR section of our website. These non Generally Accepted Accounting Principles (GAAP) measures are not intended to be a substitute for Generally Accepted Accounting Principles (GAAP) results. Unless otherwise stated, we will refer to our financial results on a non Generally Accepted Accounting Principles (GAAP) basis. Additionally, unless otherwise stated, all discussions today refer to our results from continuing operations and all comparisons discussed today for the first quarter of fiscal 2026 are against the same period a year ago. Please note that a supplemental slide deck outlining selected operating metrics is available on the IR section of our website. Following our prepared remarks, Mike and Stuart will take your question. Please limit yourself to one question and one follow up question and with that I’ll turn the call over to Mike.
Mike Creeden (Chief Executive Officer)
Thanks Daniel. Good Morning everyone. At Dollar Tree, we continue to focus on executing our strategic plan, expand and modernize our assortment through multiprice, manage costs with agility, create a strong connection with our customer, open more new stores and improve the condition of our fleet and the in store experience, all of which are supported by supply chain excellence and our more than 150,000 associates. At the same time, we recognize the consumer environment remains dynamic, especially for lower income households navigating higher fuel costs and broader macro uncertainty. Customers are shopping thoughtfully and closer to need with a continued focus on affordability and convenience and trip efficiency. Customers value the ability to shop nearby and quickly, to stretch their budgets through smaller and more affordable pack sizes and to still find a compelling assortment and discovery throughout the store. Importantly, our model is built for environments like this. Our deep value and attractive opening price points not only enable us to best serve our core customer, but they also position us to benefit from trade in behavior as customers across multiple income cohorts become increasingly value focused against a backdrop of ongoing uncertainty around fuel costs and tariffs, we will continue to protect value while strengthening the quality and relevance of our assortment. In this environment, our powerful combination of value, convenience and discovery continues to resonate with customers across all income levels and a wide range of shopping occasions. Our financial performance in the first quarter builds upon the strength of the prior quarter and validates our approach. Total sales increased 7.2% while comparable sales rose 3.5%, driven by continued strength in ticket and traffic trends that improved in in line with our expectations. Our focus and execution drove Strong margins and Q1 adjusted earnings per share growth of 38% year over year to $1.74., exceeding the high end of our outlook range. As expected, this year’s earlier Easter timing created a natural comp headwind and our core customer continues to buy much closer to need. Despite these dynamics, we delivered a good quarter. Our performance reflects the underlying momentum in the business and strong execution from our merchandise store and supply chain teams. Our multi price assortment continues to perform well and remains a meaningful growth driver. While Dollar Tree has historically and continues to feature prominently around the holidays and celebrations, we are increasingly leveraging that traffic and customer engagement to build greater relevance across everyday consumables and household categories. Throughout the year, our merchant teams are focused on bringing the multi price excitement of holiday to the everyday categories. Increasingly at Dollar Tree, we’ve been saying come for the holiday, stay for the everyday. Customers often enter the store for a seasonal need, particularly around holidays and celebrations, and then engage more broadly across everyday categories. Once in the store Our internal data continues to show that expanded multiprice assortment is supporting incremental strength in everyday categories like toys and beverages. Turning to the components of comp, traffic declined 1% in the quarter, representing a 20 basis point sequential improvement from the fourth quarter. This improvement is consistent with our expectations on a two year basis. Traffic trends improved about 200 basis points sequentially in the first quarter when compared to the Q4 two year traffic stack, reflecting both continued normalization from the initial reaction to pricing resets and also encouraging customer response to our expanding assortment and value proposition. Ticket increased 4.5% in the quarter. Ticket growth reflects the continued evolution of our assortment, the expansion of multiprice, and our ability to offer customers a broader range of value options across categories. We are seeing strength in areas such as home decor and household consumables, where we have leaned into even higher quality, sharper price points and clearer value communication. The expansion of multiprice continues to be a key enabler of that progress. It allows us to improve quality in core categories, introduce new items that were previously not viable at a single price point, and create more compelling options across a wider range of purchase occasions. Additionally, it enables us to better align price points with product attributes, improving both clarity and value for the customer. At the same time, we remain disciplined in maintaining strong relative price competitiveness. Our opening price point remains a critical anchor for both the brand and the customer’s perception of value. Even as we expand assortment and choice above the entry price point. Rigorous benchmarking of pricing and assortment against competitors has enabled us to maintain our position as a value Leader. Importantly, approximately 85% of our sales mix remains at $2 and below, underscoring our continued commitment to affordability and everyday value. And as Dollar Tree celebrates its 40th anniversary this year, customers will also see the dollar price point featured in stores as we honor the heritage and foundation of the brand. Let’s move on now and discuss profitability. Dollar Tree’s margin profile is improving. We are making progress in areas that are within our control. This dynamic contributes to stronger overall profitability and reinforces the trajectory we outlined coming into the year. Stuart will review the financial results in more detail later, but I would like to call out an area where our operating initiatives, in particular our Gold Store Standards and agile cost management focus, are translating into positive financial outcomes. While it’s still early days, we are starting to bend the curve on shrink shrink improved year over year as our strategies are gaining real traction. Initiatives we outlined at Investor Day, such as the non negotiable audit along with continued teaching, coaching and training on shrink prevention are having a measurable impact. In addition, we are seeing increased benefits from our product protection efforts which are helping to reduce loss on higher risk items. In departments where we’ve tightened merchandising standards, improved product placement, and applied more deliberate controls on an at risk category, performance is holding up better and losses are coming down. We are also being more intentional in how we identify opportunity areas in stores, addressing them through focused training, stronger oversight and consistent operational discipline. Improved store standards and greater execution consistency across the fleet directly contribute to more stable performance at the store level. While this work is ongoing, early results continue to reinforce that disciplined, consistent execution in the field is driving meaningful improvement versus last year. Dollar Tree, we’re focused on the areas within our control and our gold store initiatives are contributing to our financial performance. Now let’s talk about marketing, which is a new muscle for Dollar Tree and one that is becoming increasingly relevant as our assortment expands, as our customer base increasingly includes more higher income customers and as we seek to drive shopping frequency, Dollar Tree has one of the strongest unaided awareness levels in retail and we are working to more fully leverage that strength. We have been building and scaling more advanced marketing capabilities, particularly around targeted and data driven engagement. These efforts improve our understanding of customer behavior and how we communicate value across different customer groups. They enable us to better segment our customer base and tailor messaging in a way that is more relevant. This includes how we communicate assortment, highlight key categories and support seasonal and everyday merchandising initiatives. The net result is better customer engagement and reinforcement of our value proposition. We are also improving how we measure the effectiveness of our marketing efforts, enabling us to refine our approach over time and ensure that we are investing in the most impactful channels and strategies and are capturing a return on our investment. It is about improving precision and delivering clear, relevant messaging that aligns with how customers are shopping our stores and engaging with our expanded assortment. As these capabilities continue to evolve, they will play an increasingly important role in supporting overall performance and strengthening customer engagement. At Dollar Tree, everything starts with the customer and we are spending more time listening to our customers and understanding how they shop in ways we never have before. Let’s turn to traffic, which remains an important component of the overall model. The performance in Q1 was consistent with our expectations and directionally aligned with the traffic patterns we discussed last quarter following the pricing transition and restickering activity. Our experience with breaking the dollar demonstrated that that a major pricing reset at Dollar Tree results in a temporary shift in the balance between traffic and ticket while overall comp performance remains healthy. Importantly, we continue to believe the current traffic response remains more muted and will normalize more quickly, reflecting the more targeted and strategic nature of the pricing actions taken over the past year. We remain highly focused on the needs of our customers and approach pricing thoughtfully, ensuring we continue to deliver the deep value they rely on while reinforcing our position as the value leader. More broadly, traffic trends are behaving in a way that is aligned with how we would expect the business to perform given the evolution of assortment, multi price strategy and customer behavior. When we look across the fleet, traffic performance varies in ways that are consistent with trade area, store characteristics and execution levels. That variation provides clear visibility into the underlying drivers of traffic performance and helps inform how we continue to operate and prioritize across the business. Importantly, it also reinforces that the levers we are focused on execution, assortment and overall store standards are directly relevant to how the business performs. Against a still uncertain macro backdrop, we are seeing customers remain highly value focused, intentional in how they shop and shopping closer to need, while the external environment remains dynamic, including ongoing variability in fuel prices and tariff related uncertainty. We believe our value positioning continues to resonate with customers, navigating this current inflationary environment as we anniversary last year’s pricing actions in the second half. Traffic should also benefit from the operational and merchandising progress already underway across the business and our focus remains on reinforcing clear value in the assortment, targeted customer engagement and better in store execution. First, we’ll continue leaning into the areas where customers are responding positively, particularly multi price expansion in everyday categories and a compelling opening price point assortment. Second, as I just discussed, we are continuing to scale our marketing capabilities where targeted outreach is driving incremental trips and a strong roi. Third, on the operations side, we’re focused on making stores easier to shop, ensuring consistent cashier coverage, continuing to address underperforming stores with tighter field accountability, and reinforcing our gold standards across the fleet to improve execution, store conditions and the overall customer experience. Fourth, we’ll continue improving the experience through disciplined store refreshes and renovations focused on enhancing productivity and the customer experience. As our founders often said, when we operate clean, bright and inviting stores, our customers win and Dollar Tree wins. Finally, because our model enables us to help our customer better navigate uncertain times, Dollar Tree has in the past become more relevant in tougher economic environments. This may prove an added tailwind over the quarters ahead. Taken together, we believe these efforts support improved trip frequency, broader customer engagement across shopping occasions, and a more consistent experience that should help us earn that next visit when we step back and look at the quarter holistically, a few things are clear. First, we delivered strong operational execution resulting in margin expansion and earnings growth ahead of our outlook. Second, the business continues to perform as expected with comp driven by ticket and supported by a stronger assortment. Third, traffic trends remain in line with our expectations following the pricing actions last year and finally, we are deploying strategies to increase customer frequency. We are encouraged by the progress we are making in profitability and execution and we remain focused on continuing to build on that momentum. We are operating with discipline, focused on the right priorities and building a business that is more consistent, more predictable and better positioned for long term growth. As we look ahead, our focus remains on continuing to execute against the priorities we have outlined while remaining responsive to the external environment and aligned with the needs of our customers. We believe our work today builds a stronger foundation for the future and positions us well for sustainable growth over time. Importantly, we believe the first quarter serves as another proof point that the actions we are taking across assortment, operations and execution are driving strong financial performance. We are building a more relevant assortment delivered through more consistently well run stores informed by deeper engagement with customers and a better understanding of how they shop. Dollar Tree with that, I’ll turn it over to Stuart to walk through the financial details.
Stuart Glendinning (Chief Financial Officer)
Thank you Mike and good morning everyone. For the first quarter of fiscal 2026, Dollar Tree delivered strong results across the Profit and Loss (P&L). Traffic trends improved and we drove operating margin expansion and grew adjusted earnings per share 38% year over year to $1.74. This result was ahead of our outlook range. Let me walk you through the details and then discuss our updated outlook. First quarter net sales increased 7.2% to $5 billion, driven by a 3.5% increase in comparable store sales and a 3.7% contribution from net new store growth in line with our expectations. Comparables were driven by a 4.5% increase in average ticket on the back of last year’s pricing actions and higher multiprice penetration. Traffic was down 1%, also in line with our expectations. By category, consumables increased 3.2% while discretionary delivered a 3.9% compared to with notable strength in toys and personal care. Gross margin expanded 120 basis points Year over year driven primarily by higher merchandise margin, freight favorability and lower shrink. These benefits were partially offset by higher tariffs and markdowns. Moving down the P and l total SG and A inclusive of TSA income delevered 10 basis points driven by increased investments in marketing, higher general liability costs and higher depreciation expense, partially offset by TSA income and lower payroll expenses. We continue to make progress on growing total SGA in line with the rate of sales growth. Even after factoring in the impact from incremental marketing investments and higher general liability costs. SGA growth inclusive of TSA income was largely in line with sales growth. Let me take a moment to briefly address corporate SGA after the sale of Family Dollar. A separate corporate segment is no longer needed, however, so you can track our progress. We will continue to provide the breakout of corporate SGA through the fourth quarter of this fiscal year, but starting in the first quarter of 2027, we intend to report one total SGA line only. With that said, Q1, corporate SGA inclusive of TSA income declined 15% year over year and leveraged 70 basis points to 2.4% of total revenue. Taken together, adjusted operating margin expanded 110 basis points to 9.5% and adjusted operating income dollars increased 22% year over year. Below the operating line, net interest expense and tax rate were in line with our expectations. While the average diluted share count was modestly favorable, adjusted diluted earnings per share increased 38% to $1.74. Turning to the balance sheet, inventory declined 9% versus the prior year, while sales increased 7.2%, resulting in a favorable inventory to sales spread. Our continued focus on improving inventory turns supports fresher assortments for our customers, working capital efficiency and stronger free cash flow generation. We ended the quarter with $1 billion in cash and no commercial paper outstanding. We generated $644 million in cash from operations and invested $253 million in capital expenditures, resulting in free cash flow of $392 million. During the quarter, we repurchased about 5.5 million shares for $595 million subsequent to quarter end, and as of today, we repurchased a further $98 million of stock. Looking back over the past 12 months, we’ve reduced our share count by approximately 8% and returned $1.7 billion to investors through share repurchases. Before I share our second quarter outlook and updated expectations for fiscal 2026, I would like to start by talking to you about our tariff rate assumptions. We are closely monitoring the tariff environment and we’re taking a prudent approach to our outlook. Consistent with last quarter, we are assuming that the current tariff rates remain in place through July and then increase in the back half of the year to the levels predating the February 20 Supreme Court decision. Additionally, we’ve not included any tariff refunds in the outlook. Turning to our updated outlook for the year, we expect net sales in the range of $20.5 billion to $20.7 billion, reflecting comparable store sales growth of 3 to 4%. Given the stronger first quarter performance, lower tariffs for part of the year, higher fuel costs driven by the current macro environment, and lower share count. Following our repurchases, we now expect adjusted diluted earnings per share in the range of $6.70 to $7.10. Note that this outlook incorporates an outstanding share count of 194 million shares, which reflects share repurchases through today’s date. Turning to the second quarter, we expect net sales in the range of $4.8 billion to $4.9 billion, reflecting comparable sales store growth of 2.5% to 3.5%. Adjusted diluted earnings per share are expected to be in the range of $1 to $1.15. In closing, we are encouraged by the start to the year and we believe we’re well positioned to deliver consistent, profitable growth and to create long term shareholder value. With that, I’ll turn the call over to Mike.
Mike Creeden (Chief Executive Officer)
Thanks Stuart. We delivered a strong start to the year with improved execution, driving margin expansion and earnings ahead of expectations. The business is performing well and we’re seeing good progress in the areas we control. As we look ahead. Our focus remains on disciplined execution, driving strong financial performance and staying flexible in an uncertain environment. At Dollar Tree, we’re building a stronger, more resilient business positioned for consistent, profitable growth. And with that, we’re happy to take your questions.
OPERATOR
Thank you. We’ll now be conducting a question and answer session. If you’d like to be placed into question queue, please press star1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you’d like to move your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing 1. As a reminder, we ask that you please ask one question and one follow up, then return to the queue. Our first question today is coming from Matthew Boss from JPMorgan. Your line is now live.
Matthew Boss (Equity Analyst at JPMorgan)
Great. Thanks. And congrats on a nice quarter.
Mike Creeden (Chief Executive Officer)
Thanks, Pat. So maybe first could you walk us through drivers of the first quarter beat relative to your outlook from back in March? How much of it was related to lower tariff rates and can you give us a sense of the impact from higher fuel in the quarter? And then I have a Follow up. Yeah, Matt, before Stuart jumps in, this was a really strong top line quarter for Dollar Tree. You know, when you think about the setup, I mean, we delivered a 3.5% comp on a tough compare and overcame the unfavorable Easter calendar shift. You know, to us this just speaks to the underlying strength of the business and the operational improvements we continue to see. So thank you to our Dollar Tree associates. They just absolutely love delivering this magic to our customers and helping our core customers get through this present time. So, Stuart, you want to talk about the margins?
Stuart Glendinning (Chief Financial Officer)
Yeah, thanks, Mike. Good morning, Matt. If you looked at the quarter and our performance relative to expectations, I mean the two big drivers here, the biggest driver was shrink, obviously a great performance. We said we would take action there and we have.. But the other drivers, we had favorable freight relative to our assumptions and then some contribution from margin as well. If you take those together, that’s the 120 basis points of gross margin expansion. As Mike highlighted in his prepared remarks, we’re really pleased. And we’re pleased because the kinds of changes that we saw here were really driven by operating actions. Tariffs, while they were a year over year headwind, were really offset by our five lever actions. So they weren’t really a factor in this quarter at all. And we just for absolute clarity, we had no tariff refunds in this gross margin number for this quarter. On your question about fuel, there was some sort of small volatility in the quarter, but really wasn’t a factor so much this quarter. Because of the timing of, of the conflict and the increases in the fuel rates, we’ll start to see that coming in the back part of the year. Great. And then as a follow up, could you maybe speak to the progression of comps and traffic in the quarter and if you could give us some more color on the Easter performance and then if you could just speak to how the comp is trending quarter to date, I think that would be really helpful. Sure, Matt. Broadly speaking, traffic was in line with our expectations. We saw that 20bp improvement versus Q4 and on a two year basis we saw meaningful acceleration versus Q4. So we were happy to see that the comp was strong trended in line with expectations. And I really liked the strength in both discretionary at a 3.9% and consumables at a 3.2%. For Easter, it was an expected headwind. Two weeks fewer selling moves it up into the worst weather part of the month. And seeing a customer that’s shopping so much closer to need those Days matter, but the underlying was really good at Easter with record sales in the final days of Easter. With the quarter to date, we don’t quantify inner quarter trends. Our comp performance informs our Q2 outlook, which we are comfortable with. I will say we were encouraged by the strength of Mother’s Day, but still so much of the quarter ahead of us. And as I mentioned, last call, 2025 was an incredibly strong Q2. So I think we’ve hit the right balance here when I Look at that Q2 comp outlook.
OPERATOR
Thank you. Our next question is coming from Seth Sigman from Barclays. Your line is now live.
Seth Sigman (Equity Analyst at Barclays)
Great. Good morning, everyone. When you look at the guidance for the year, you know, considering the magnitude of the Q1 beat and then the benefit from share repurchases, which is really more of a benefit on future quarters, it doesn’t seem like you’re not flowing through all of that upside to the full year guidance. Obviously you’re raising it, but not to that extent.
Stuart Glendinning (Chief Financial Officer)
So can you just walk us through some of the puts and takes as you think about that updated 2026 guidance? Thank you. Good morning. Well, thanks for that question. Look, I’ll just start by saying we’re very happy that the Q1 start was so strong because that reduces some pressure on the back part of the year. Given the macroeconomic uncertainties that are out there, we felt it was appropriate to raise the full year outlook, but we also want it to be appropriately balanced and financially prudent given some of the uncertainties that are out there. And there are several variables that remain dynamic today, including tariffs, fuel, freight,, and just some broader consumer pressure. And the updated guidance we’ve given reflects a more cautious view around some of the transportation and fuel costs relative to where we entered last year. So let me cover a couple of the details first. When we spoke to you last quarter, there was an expectation, I think, of a shorter period of impact related to the conflict in the Middle east. And that has proved not to be the case. And so now we’re assuming that the higher fuel prices lost throughout the year, since we don’t know when that conflict will end. And we’re also assuming that that amount is absorbed by the business. At the same time, we do get some benefit from lower tariffs, which will manifest themselves in the second and the third quarter. But that hasn’t really changed from last quarter since we were already expecting that. And our assumption there is that following the statements from the administration, we will revert back to the old tariffs. So because of those things and really, if you just step back and said, what’s changed? The, the only thing that’s changed in this whole assumption is that the fuel, the increased fuel prices are going to go for longer. So we’re not flowing that bull through for the full year. But a couple of other things are important in how we constructed that outlook. We did increase, we did incorporate, I should say, the lower share count for the share repurchasers through the day, no assumptions for any share repurchase through the rest of the year. And we’re also not assuming any benefit from the potential tariff refunds in the guidance, just given some of the uncertainty about when they will come and the amounts that will be coming. And so I want you to, I’ll just wrap up by saying I want you to keep in mind three upsides to the full year. The first one is that the Middle east conflict ends and oil prices drop before year end. That happens, obviously we’ll take some benefit. Second, if the tariffs that are currently in place extend past July, then there’s the potential for more benefit in the results. And the third thing is that once we receive those tariff benefits, if we assume that there’s reinvestment in the business, and we do think we will have reinvestment in the business, that those reinvestment benefits could drive the flywheel of our business in a very positive way. And of course, we would intend that to be the case. So I think we’ve taken an approach here which is sensible given the uncertainties. And I think I’ve outlined some of the things that could give you a bit of upside.
Seth Sigman (Equity Analyst at Barclays)
Okay, perfect. That’s super helpful. I did want to follow up on traffic. Down 1% this quarter seems pretty manageable, especially given some of the history you’ve seen when you look at Q2. Difficult compare. Do you still feel like traffic can inflect positively in the second half of the year? The macro backdrop and gas prices are higher. So things do feel a little bit different for the end customer than they did in March. So how are you thinking about that inflection in traffic? Thanks so much.
Mike Creeden (Chief Executive Officer)
Yeah, yeah, thanks. You know, we recognize the macros has changed, you know, as you just said, and I’ve said before, Q2 is a robust comparison. But we believe traffic will continue to improve over the course of the year. You know, we take confidence in the Q1 improvement versus Q4 despite that earlier Easter and then that 200bp acceleration on the two year. I mean, that’s meaningful and that gives us further confidence. And then you look at the back half. We anniversary several pricing actions in our initiatives that we laid out at investor day. They really continue to scale so we get benefit from that. And then finally, we’re not someone that takes price a lot. If you look at our history, it’s rare. And the worst day of our pricing is the day we take that pricing. It’s in a 25 cent increment. And then we continue to improve from there as others adjust their own pricing and we’re at our level. So that gives us further confidence on the macro. Sure, customers are under pressure from higher fuel prices, but that also makes them more value focused. Look back at history. I always talk about that. 20 years of positive comps. Periods like this reinforce Dollar Tree’s position as a key partner for our customers. One, our outstanding value, Two, we’re close to home with an in and out shop. And three, people still want to treat themselves. And at Dollar Tree, it’s guilt free. Treat yourselves because of where our value is and our pricing. So that gives us confidence as we look out over the course of the year.
Seth Sigman (Equity Analyst at Barclays)
Thank you.
OPERATOR
Our next question today is coming from Rupesh Parikh from Oppenheimer. Your line is now live.
Rupesh Parikh (Equity Analyst at Oppenheimer)
Good morning. Thanks for taking my question.
Mike Creeden (Chief Executive Officer)
So during our store checks, we recently observed some price increase in center store food. So curious whether this was planned. How much of the store did it impact and what’s the strategy behind it? And then as you look at the places where you took pricing, how do your values compare to the competition at the new price levels? Thanks, professor. I’ll start that first. Just to put it in context, this is a very small portion of our assortment, less than 5%. Our objective was to improve assortment relevance and also improve price clarity for the customer. We’re listening to our customers in ways we never have before. And there were brands that we had lost because we couldn’t provide them at the dollar or the $1.25. And our customers wanted those brands. They were part of their occasions to come. And so at 150 we were able to bring that back. Rice a Roni is a great example. Spam, you could see it in the Frank’s hot sauce. I mean, we put that on everything. So it really gave us a good opportunity. And then in terms of the competitiveness. Stuart, do you want to hit the process there?
Stuart Glendinning (Chief Financial Officer)
Yeah, sure. Mike, let me talk a little bit about how we benchmark versus competitors. So, Rupesh, good morning. We don’t achieve value by chance. That’s really my first point. Our merchants do the shopping for our customers to make sure that we get to the best. And one of the ways they do that is that they rigorously benchmark our products against the competitors. Now remember, only about 20% of our store can actually be is actually like for like. But even when they do that like for like comparison, they’re pretty generous to our competitors in the way that they benchmark that because they allow much larger packs to be benchmarked directly on a per ounce basis against our own PACs. And even when we do that, we still show data that shows us to be positive on a relative value basis versus the competitors. And I’ll also say part of that value benchmarking is not simply what is the price but also what is the spec of the goods that is going into. So it’s a very detailed process that gets back to the point I started with, which is this doesn’t, this doesn’t happen by chance on the 80% of the store that is sort of unique to us. Our merchants still on those items. I mean 85% of the store is less than $2. So this separates us from most competitors generally speaking. But outside of that, I mean our merchants are constantly focused on how they achieve the greatest value on any of those items. They want the deals to be real deals. And that’s how we end up with things like $5 hammers. And so we always start with value. We end with value across 100% of the store. Great, that’s helpful.
Rupesh Parikh (Equity Analyst at Oppenheimer)
Color then. My follow up question, SGA delevered during the quarter.
Stuart Glendinning (Chief Financial Officer)
Can you speak to your confidence that SGA can lever this year? And also since you’re lapping the red stickering headwind, how should we think about SG and a growth on an underlying basis? Just any headwinds or tailwinds we should be thinking about? Yeah, thanks Rupesh. I mean, yeah, let me pick that apart. So first of all, SG&A outcome is really good. Look at this against history. It’s clear that the results we’ve delivered in Q1 are good results that put us absolutely on the track that we’ve been talking about when you consider what also took place in Q1. Because at the same time we delivered these results in the first quarter, we were continuing to invest incrementally in marketing initiatives and we also had to absorb some increased pressure from general liabilities. So let me talk to a couple of those things. First of all, on general liabilities, I want you to think about that a little bit. Like we approach shrink, we’ve taken it apart. We know what the Drivers are, we’ve got teams organized around it and we have a very clear action plan that is designed to bend the trend on general liability, even though that is a bit of an industry problem. We are also continuing to make progress on growing SGA more in line with our business. That has been the focus of our organization. And we’re seeing much better cost discipline, we’re seeing labor productivity and we’re starting to see those leveraged characteristics now in the back half of the year. In the back half of the year we will start to lap the restickering from last year. So you’re going to see absolute leverage in the back half of the year. I mean, how am I confident we’re going to see leverage? Because I know we’ve got that one time from last year. But putting that aside, all of our goals remain the same and we’re confident that we are on the right track to deliver our SGA promises. Thank you.
OPERATOR
Our next question today is coming from Chris Bottiglieri from bmp. Powered by your line is now live.
Chris Bottiglieri
Good morning. Thanks for the question. Can you speak to what you are seeing from low income consumer given elevated gas prices? Additionally, have you started to see any trade in to Dollar Tree from high ranking consumers given the environment? Are you seeing anything differently from a merchandising perspective? Are you doing anything differently from a perspective?
Mike Creeden (Chief Executive Officer)
Yeah. Thanks Chris. Across all income levels, customers are value focused and definitely prioritizing affordability, convenience and gas saving trip efficiency. In Q1, customers saw higher gas prices for sure but they also saw higher tax returns and typically we see a lag in the true impact from higher gas. So that remains to be seen a bit as to the impact they have. But no matter what the customer faces, we know that value and convenience will be top of their priorities and for us that’s where we meet them and that’s where we think we’re really well suited. And I couldn’t think of a better time to have a more complete and relevant assortment. So yes, we are seeing trade in customers as we continue to grow households. You know, we’re the fourth largest retailer by household penetration by penetration retailer and it’s skewing higher income, more than half skew higher income and they’re finding an assortment that is really relevant to them. So you know, Dollar Tree is a destination in times like this and we will, we’ve proven that over our history and we’ll continue to see that.
Stuart Glendinning (Chief Financial Officer)
Mike, maybe just let me, let me just offer a couple of thoughts on some of the data that we’re seeing. You know, we, we look at our performance by income cohort, we’ve got the ability to slice some of that. And it’s no, there’s no question the low income consumers under pressure. I mean we’ve just gone through three or four years of higher inflation. Generally think about food, health care, housing, utilities. Look at all those things over the last number of years and you will see them indexing higher, markedly higher. And now on top of that is coming this much higher gas price. But the critical thing, and this is really the message I want to give you is that when we look at Dollar Tree, when I take apart the data from this past quarter and we look at our store base by income demographic, all all our cohorts are comping positive in this past quarter. So comp growth is broad based. And some of the things that Mike is saying about the attractiveness of our assortment and our offering and our value to customers is proving out in the data.
Chris Bottiglieri
Thank you.
Mike Creeden (Chief Executive Officer)
And then my follow up would be a question on tariff refunds. Can you give us an update on the tariff refunds and how to think about timing, amount and the use of the proceeds? Sure, yeah. Thanks for the question. Like many companies, we’re participating in the tariff refund program. There’s still a lot to process through, especially on what future tariff landscape might be. But you know, at Dollar Tree, we start with the customer. Our focus is the customer. So we would look to reinvest any refunds in the business to enhance our ability to deliver that value, convenience and discovery that our customer comes to us for. In terms of the outlook, as Stuart said, you know, we haven’t. Nothing was in Q1 and nothing’s assumed in the outlook going forward.
OPERATOR
Thank you. Our next question is coming from Michael Lasser from ubs. Your line is now live.
Michael Lasser (Equity Analyst at UBS)
Good morning. Thank you so much for taking my question. We’re all trying to figure out the interplay between your outlook for traffic and your profitability. So on the one hand you’re making the case that given the outlook for stacks as the traffic comparisons get easier, coupled with the historic experience as traffic had come back following your initial move to the $1.25 price point, traffic will improve. But on the other hand, you’re also saying that you’re going to absorb some of the increased costs in the second half of the year, may focus a bit more on marketing. So perhaps you’re saying you’re going to need to sacrifice your profitability in order to drive that traffic. So how do you prioritize over time this balance between restoring positive Traffic versus maintaining the profitability of the business. Is there one that you would prioritize over the other? Meaning if traffic does not improve in the back half, you’d be willing to sacrifice some of your margins in order to do that?
Stuart Glendinning (Chief Financial Officer)
Yeah. Good. Well, let’s talk about Michaels. That’s a good question. I mean, I don’t think we’re going to say what we will do when we face specific circumstances. I can tell you what our plan is. In answer to the question that I had earlier about the outlook, I sort of made it clear that some of the benefit we took in Q1, some of the outsized performance in Q1, we will use that to help insulate the back part of the year. And so our view is we don’t know how long the conflict in the Middle East is. Like others, we are hopeful that that is a temporary and not a structural issue. For the moment, we are treating that as a temporary problem. And that is to say we’ve got the resource in our forecast for the year, our estimates to be able to be able to manage absorbing that cost. And as I also said earlier, I think there are some upsides here. I mean, if we do see earlier oil change and that will take the pressure off in an obvious way when we get those tariff refunds, those will see reinvestment in the business. None of those are really in there. So I think there are other places to go to reinforce traffic in the back half before we have to eat into the outlook that we provided to you today. Does that make sense?
Mike Creeden (Chief Executive Officer)
It does. Stuart, it would be helpful if you could outline some of those levers that you would push in order to drive traffic. It does not perform up to what you’re expecting. And then I have a quick follow up. Thanks. Yeah. Michael, the initiatives that are already in play that we’ve laid out, those improving store standards. Stuart talked about how we saw traffic by our store groups, how they were performing, where they were located, all that, all those initiatives are already underway. We really see those as gaining traction and being big drivers in the second half. You know, you talk about shrink. You know, shrink improves in well run stores. And so we really look at the assortment we’re delivering and looking out over the second half. We look at the improvement in the store standards. We look at the marketing that has a, it’s a kind of low cost, quick return type marketing. We really feel all those will be big drivers in the second half.
Michael Lasser (Equity Analyst at UBS)
Understood. My quick follow up is Mike, as the basket, the price of a basket for a customer increases the Customer comes to the register, sees that it costs a lot more to buy the same volume of goods that they might have purchased in the past. Perhaps their expectations around the store experience also elevate if they’re going to have to spend more to buy the same amount. So you showed this helpful graph on where your store standards are across the distribution of your entire population. Where does that stand today? And are you willing to invest more in labor or other operating expenses to accelerate and bend the curve on your overall level of store standards in order to meet the customer’s expectations if they have risen as a result of the higher price point? Yeah.
Mike Creeden (Chief Executive Officer)
First on the back, I think you’ve got to ground yourself in the fact that 85% of what we sell is less than $2 or less. So we have an average unit of $1.51. You get a basket, 12 bucks and change. We are not the same sticker shock you’re getting when you check out at a grocery store or one of these mass merchants. It’s different in terms of we call it the Himalayas. Somebody said that at Investor Day and I’ve always liked it. Jossy gets tired of me asking about the Himalayas. We are seeing improvement in it. Sliding to the right. Retailers are always chasing their lower performing stores. We were chasing more stores than we should have been. We’ve seen that improve and materially improve. Shifting to the right. And I think shrink is a good proof point of that. When you’ve got a well run store, we know shrink can be internal and external. And when you have a well run store, it’s easier to see what’s out of place. And it’s easier to control the things you control, including in stocks and shrink. So I think that’s a good proof point, Michael, of the progress we’ve made in improving the overall store standards.
OPERATOR
Thank you. Our next question today is coming from Scott Shkreli from Truist Securities. Your line is now live.
Scott Shkreli (Equity Analyst at Truist Securities)
Good morning, guys. Thanks for the time. So you talked about making progress on the initiatives you provided Investor Day.
Mike Creeden (Chief Executive Officer)
I think one of the ones that really stood out was your gold star goals and how the majority of your stores basically are substandard by your own metrics. So can you help us understand the progress that you’ve already made on improving the store standards, whether that’s, you know, percentage that shifted from 3 to 5 or whatever it is. And then also what is your expected progress for the balance of the year? Sure. And just to correct, I think 42% was what we showed. So it Wasn’t the majority were below our standards. But if the average retailer is chasing 15 to 20% of their stores, we were chasing 42% below our standards. So that’s what I showed at Investor Day. That’s significantly high. That’s less than a third today. So we haven’t broken that out, but I’ll tell you right now, that’s less than a third. Still not where we want it to be, but significant improvement. When you have 9,400 stores and change, turning these big large ships are hard to do. I’m very pleased with the progress we’ve made over the past year. And as more and more stores are above our standard and approaching that grand opening look daily, the ones left to manage get easier to manage just because of volume. If every room in your house is a mess, it takes longer to clean it. As you start cleaning room to room, it gets easier to clean up the kitchen. And that’s really what Jossy and the team are doing. They’re making that progress and it’s not linear. It starts to accelerate because of fewer stores to address.
Scott Shkreli (Equity Analyst at Truist Securities)
Thanks for that. And then just a quick follow up, we saw a decline in inventory levels. Was there something kind of unique about this quarter in terms of timing or is the expectation to manage down inventory? Because obviously that becomes a gross margin benefit for the balance of the year if it stays lower. Thanks. Good question. We’ve been very focused over the last 12 months at trying to manage that inventory. If you look back a year ago, we felt that our turns were just too slow. We were carrying too much inventory. It was gumming up stores and distribution centers, taking too much storage space. So it’s been a very conscious effort over the past 12 months to reduce the inventory, and we think it’s a really great result. I mean, if you looked at this quarter, if the inventory had just grown in line with the sales over this past 12 months, we would have $425 million more inventory than we have today. So it’s been a good result operationally to unclog the system, and it’s also been a very good outcome for working capital efficiency. Thank you.
Edward Kelly (Equity Analyst at Wells Fargo)
Our next question today is coming from Edward Kelly from Wells Fargo. Your line is now live. Morning, guys. Stuart, I was hoping that you could double on freight for us. Historically, obviously, it’s typically been a sizable headwind for Dollar Tree when prices spike.
Stuart Glendinning (Chief Financial Officer)
Could you maybe just talk a bit more about Ocean Domestic spot versus contract? And I guess overall, the real question here is how confident you are in your Visibility in terms of any freight headwind being in guidance this year. Got it. Okay, well, let’s pick it apart. I mean, I think, I think some of the comments that I’ve made in the last quarters I would sort of echo here today. I mean, we had very favorable freight environment last year. I mean there’s been plenty of capacity in the marketplace that hasn’t changed dramatically through this point. As we were coming into the year. It was one of the things that was on my watch list as a potential downside that hasn’t manifested itself, which is sort of good news. We’ve been through our most of our negotiations on freight and the base rates for those for that freight movement have remained pretty favorable actually. I mean, so we haven’t seen dramatic movements from last year. What is different, of course, is that everybody’s facing a higher fuel bill and it is perfectly reasonable to expect that our freight providers are going to be reimbursed for those higher costs. And so you’re seeing freight surcharges which are coming through, which are baked into our expectations for the remainder of the year. Last quarter and maybe even the quarter before, I had warned that there may be some pressure on driver availability and driver availability has been squeezed some and so we have seen some incremental costs from driver costs which we baked into our numbers. So all of that is in there. And then just your last question, which is about sort of what do we think about in a spot or long term contracts versus short term in the current environment you want to avoid spot because those prices are very, very high. But if you look at our, the construct of our freight agreements over the last couple of years, those have moved to more of a shorter term bias, that is to say a year or so. And that was conscious in the current environment. That is not a bad thing because we actually see that we’ll be more tightly coupled with the marketplace. So we still have a mix of both just to reassure you, but it’s moved a little bit more towards the shorter timeframe.
Mike Creeden (Chief Executive Officer)
And then just quick follow up. Helium. Just thoughts on helium supply. What you’re seeing how it may impact you for the balance of the year. Sure, helium is still a bit tight across the industry, but overall we feel good about how we’re managing it. We came into this with a stronger inventory position as one of the largest buyers, which really helps us from an access standpoint and is an improvement from where we were dealing with this in the past. I also like the timing. I wish we didn’t have any helium shortages. But I like the timing of it because if you think about big holidays, Valentine’s Day being a huge demand. And then we were. So it came after Valentine’s Day. We already had supply for Mother’s Day and grads. And so we see demand now ease a bit and we’ll continue to work closely with our suppliers and use our scale to keep things flowing. I do also want to mention I recently celebrated my son’s 15th birthday on Saturday. Plenty of helium balloons, but also the stick balloons set up an entire table. I say that to say the substitutability at Dollar Tree is second to none. You want to come in and celebrate? We promise you we’ve got something for you to celebrate and it looks great and no one can match our value.
Edward Kelly (Equity Analyst at Wells Fargo)
Thank you.
OPERATOR
Our next question is coming from John Heimbuckle from Guggenheim Partners. Your line is now live.
John Heimbuckle (Equity Analyst at Guggenheim Partners)
Hey, Mike, two things tied together. What’s your vision for marketing now that you ramp it up in terms of, you know, what should you be spending where? Right. I think about calls to action on a personalized basis to get people in for that extra trip. How do you think about that holistically? And then what’s your outlook for UPT (Units Per Transaction)?
Mike Creeden (Chief Executive Officer)
Right. That naturally should improve. Right. As you cycle some of the tariff increases. Yeah. Thanks, John. In terms of the marketing vision, we have a new muscle here. It’s a test and learn muscle. So we’re going to lean on that. We’ve got data now that we’ve never had before, really leveraging elements of AI throughout our business to really get to know our customer better. And so I say that to say our test and learn is going to fuel what we do with marketing. So when we do our banner ads, our pushes, when we do influencers, social media, when we see things that hit, we’re going to lean into that and we’re going to grow, always with an eye towards the returns on it. So I said at the retail roundup earlier this year, don’t think of us Super Bowl ad, but definitely think of us leaning into social, leaning into targeted messaging to our customers to make sure they’re aware of what’s inside the box. Our unaided awareness at Dollar Tree is incredible. It’s one of the highest in retail. But what’s in the box with our new expanded assortment has changed and we want to tell our customer about that. So we’ll leverage, test and learn to really lean in and over time develop our long term marketing vision. On the units front, we think about Units Per Transaction (UPT) as an output, not an input to our assortment. Given the growth in multiprice units become less relevant as a marker. As we said or I said at Investor Day, you know, we’re focused on space optimization and driving that shelf productivity and so as such we’ll reallocate space to a more productive assortment. So if a five dollar hammer, Stewart’s favorite thing, replaces $4.25 units, you know your units come down. But we like what we see from the shelf and the shelf is working harder than than we had it working before. In Q1 units per transaction declined in line with our expectations. It’s a natural output of this evolution I’m talking about. And when we look longer term, our objective is to improve basket building opportunities through broader assortment relevance, stronger consumables, engagement and a more compelling multi price offering that drive increased shopping frequency and fill and complete that basket cross category purchasing behavior. So it’s important it’s a little less relevant but it’s something we’ll keep looking at and it performs in line with our expectations. Thank you.
OPERATOR
Thank you. We reached out our question and answer session. I’d like to turn the floor back over to Mike for any further closing comments.
Mike Creeden (Chief Executive Officer)
Thank you and thanks everybody for joining us today and for your continued interest in Dollar Tree. I’d like to once again thank our over 150,000 Dollar Tree associates who make magic. We appreciate you. Thanks for the time. Speak with you again next quarter.
OPERATOR
Thank you.
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