Dollar Tree Keeps Winning After Family Dollar Divorce

Key Points

• Dollar Tree sold its underperforming Family Dollar business in 2025.
• Since then, the stock has gone on a tear, handily outperforming the S&P 500.
• Dollar Tree's profitability continues to improve, and the company just raised its guidance for 2026.

Approximately 14 months ago, the dollar store giant Dollar Tree NASDAQ: DLTR reached an agreement to sell its struggling Family Dollar franchise. Dollar Tree only won a competitive battle to purchase Family Dollar against its top peer, Dollar General NYSE: DG, in 2015. At the time, both companies clearly viewed Family Dollar as an asset that would aid their business.

However, what transpired was anything but so—Family Dollar significantly deteriorated Dollar Tree’s overall financial performance. Dollar Tree sold the company for $1 billion in 2025—a fraction of the $9 billion original purchase price.

Based on Dollar Tree's share performance since selling Family Dollar, that decision is paying off in a big way. Since the end of March 2025, Dollar Tree shares have risen by about 45%. This represents a significant outperformance compared to the S&P 500, which has delivered a return of about 30% in that period.

A huge contributor to Dollar Tree’s strong performance was its latest earnings report. The consumer staples stock spiked almost 18% in response, as Dollar Tree posted better-than-expected growth, profitability, and guidance. Here’s where the company stands now.

Dollar Tree Blows Past Profit Expectations

In Q1 2026, Dollar Tree posted revenue of $4.98 billion, or an increase of 7.2% year-over-year (YOY). This figure slightly beat estimates of $4.96 billion. However, the much more impressive beat came on Dollar Tree’s adjusted earnings per share (EPS). At $1.74, adjusted EPS rose by 38% YOY, dramatically better than the $1.53, or 21% growth, that analysts expected.

This came as Dollar Tree experienced a sizable 120 basis point expansion in its gross margin YOY to 36.8%. Notably, almost all of this expansion bled down to adjusted operating margin, which expanded 110 basis points to around 9.5%. With absolute adjusted operating margin being below 10%, an over 100 basis point increase YOY is a substantial improvement.

The company’s adjusted operating margin gains are one example of how the sale of Family Dollar is positively impacting Dollar Tree’s business. Prior to the sale, Dollar Tree’s overall adjusted operating margin fell as low as 5.4% on an annual basis. Family Dollar was a significant detractor from total operating profitability. Family Dollar’s adjusted operating margin often hovered below 2% and even dipped into negative territory in multiple quarters. Overall, Dollar Tree’s adjusted operating margin was its highest Q1 posting in four years.

Dollar Tree Raises Guidance, Notes Several Points of Upside Potential

Dollar Tree’s solid profitability improvement in Q1 allowed the company to raise its full-year adjusted EPS guidance. The company now expects the figure to come in at between $6.70 and $7.10, or $6.90 at the midpoint. This is moderately higher than its past midpoint expectation of $6.70. The updated midpoint implies YOY adjusted EPS growth of 20%, compared to around 16% before. However, the company left its full-year revenue guidance unchanged, projecting sales of between $20.5 billion and $20.7 billion. This implies comparable sales growth of 3% to 4% YOY.

Even while raising its guidance, Dollar Tree characterized its outlook for the full year as conservative. This comes as Dollar Tree now models that higher oil prices will persist through the rest of 2026, and that the business will absorb these costs. Last quarter, Dollar Tree modeled that the conflict in the Middle East would end sooner, and elevated oil prices would only affect it for part of the year.

Still, Dollar Tree pointed out multiple factors that could provide upside to its guidance. First is the possibility that the conflict ends sooner rather than later, causing oil prices to fall before year-end. The company could also benefit if the lower tariffs in place today extend past July. Additionally, Dollar Tree did not model any further share repurchases through the rest of the year. Thus, more repurchases during the year could add a tailwind to per-share metrics.

Lastly, Dollar Tree may receive a tariff refund. If it does, the company plans to reinvest this back into the business to offer better value to customers and drive traffic. This creates potential for indirect sales and EPS improvements if these investments resonate with customers. That would be particularly positive for Dollar Tree, as traffic has declined YOY for three quarters in a row.

Dollar Tree’s Outlook Remains Positive as Forward P/E Aligns With 3-Year Average

After its post-earnings surge, Dollar Tree trades at a forward price-to-earnings (P/E) ratio near 17x—almost exactly in line with its average over the past three years. This also comes before analysts adjust their forecasts. Given that Dollar Tree raised its guidance, analysts are likely to follow suit and raise earnings projections, pushing its forward P/E down.

Dollar Tree has significantly improved profitability since breaking up with Family Dollar, and there is upside to its guidance. Its valuation is in line with recent history, but traffic remains a notable weak point. Considering these factors, the outlook for Dollar Tree skews moderately to the upside.