Dollar General surges, Dollar Tree slides as tariff refunds reshape discount-store earnings

Dollar General and Dollar Tree both topped Wall Street's second-quarter estimates on Thursday, delivering the kind of earnings beats retailers dream of. But their stocks moved in opposite directions on the New York Stock Exchange and Nasdaq, as investors tried to separate durable sales momentum from a one-time windfall: hundreds of millions of dollars in refunded tariffs that the federal government began returning to importers this year after the Supreme Court struck down the levies.

Dollar General, based in Goodlettsville, Tennessee, reported net sales of $11.3 billion for the quarter ended July 31, up 5.2% from a year earlier, according to the earnings release the company filed with the Securities and Exchange Commission. Diluted earnings per share jumped 33.3% to $2.48, blowing past analyst expectations of roughly $2.00 to $2.01 a share. Same-store sales climbed 3.5%, split between a 2% rise in customer traffic and a 1.5% increase in average ticket size — the chain's sixth straight quarter of positive comparable sales across all four of its merchandise categories. Shares surged as much as 8% in early trading before settling to close up about 5%, near $128.90.

Dollar Tree, which also owns the Family Dollar banner, posted total sales growth of 7% to $4.9 billion, ahead of the roughly $4.85 billion analysts had penciled in, according to the exhibit attached to its own SEC filing. Comparable-store net sales rose 3.7%, made up of a 3.3% gain in average ticket and 0.4% growth in traffic. But its stock fell as much as 7% before paring losses to close down roughly 3%, near $128.76, after the company gave third-quarter profit guidance that landed below what investors had modeled. The retailer also disclosed it spent $605 million on share buybacks during the quarter.

• Dollar General: net sales $11.3B (+5.2%); diluted EPS $2.48 (+33.3%); comparable sales +3.5%; gross margin 32.6%, up 127 basis points; shares closed up roughly 5%
• Dollar Tree: net sales $4.9B (+7.0%); adjusted EPS $2.70, including a $1.31 tariff-refund benefit; comparable sales +3.7%; operating margin 14.1%, up 900 basis points; shares closed down roughly 3%
• Both chains raised full-year profit guidance, to $7.80–$8.00 a share at Dollar General and $7.70–$8.05 at Dollar Tree
• The tariff refunds trace to a Supreme Court ruling in February that voided duties imposed under the International Emergency Economic Powers Act, triggering roughly $165 billion in refunds to importers

The tariff-refund effect

Underneath both results sat the same unusual line item. In February, the Supreme Court ruled 6-3 that the tariffs the Trump administration imposed under the International Emergency Economic Powers Act exceeded presidential authority, and the U.S. Court of International Trade subsequently ordered Customs and Border Protection to return the roughly $165 billion in duties collected from an estimated 330,000 importers. CBP has been processing those refunds in phases since April through a new system called CAPE, with payouts typically arriving 60 to 90 days after an importer's claim is accepted.

Both dollar-store chains got a piece of that money back this quarter, and both said so plainly in their investor disclosures. Dollar General said tariff refunds, net of related reinvestment, added about 81 basis points to gross margin and roughly $0.25 to earnings per share. Dollar Tree's benefit was far larger relative to its size: the company booked $383 million in IEEPA tariff refunds, partly offset by $37 million in reinvestment costs, for a net $1.31-per-share lift to its $2.70 adjusted EPS figure — meaning more than half of Dollar Tree's headline profit this quarter came from money the government had wrongly collected and was giving back.

That distinction explains the diverging stock reactions. Dollar General raised its full-year outlook, lifting its EPS guidance to $7.80–$8.00 from $7.20–$7.45 and its same-store sales growth target to 2.5%–2.9% from 2.2%–2.7%, according to its latest published guidance and that of its rival. Dollar Tree also raised its full-year adjusted EPS range, to $7.70–$8.05, but roughly $0.60 of that figure is attributable to tariff refunds rather than operations, and its third-quarter guidance of $0.80–$0.95 per share — which bakes in a $0.50 hit from reinvesting refund proceeds back into pricing and supply chain — came in below what some analysts had expected once the one-time gain was stripped out.

Who's trading down, and why it matters

Behind the accounting noise, both chains are riding the same structural shift in American shopping habits. Retail executives and analysts have described "trade-down" — shoppers switching from grocery stores and big-box retailers to dollar chains for staples — as a trend that has outlasted the inflation spike that originally drove it. Dollar General has said the trend is accelerating even among households earning more than $100,000 a year, with groceries and over-the-counter drugs the biggest draw. Dollar Tree has leaned into the same dynamic through its "3.0" store-format overhaul, which now spans roughly 5,300 converted locations offering multiple price points above the traditional $1.25 mark; the company says the format has pulled in 3 million new households, 60% of them from six-figure-income brackets, according to retail-trade reporting on the shift.

The tariff-refund windfall itself has broader implications beyond these two chains. Major retailers have collectively disclosed more than $5 billion in refunds this year, and most, including Dollar General and Dollar Tree, have opted to reinvest much of it into pricing and margin rather than pass it directly back to shoppers who effectively paid the tariffs' cost in the first place through higher prices. For consumers, the practical upshot is mixed: dollar-store executives have acknowledged some import-driven price increases are still working through shelves even as the refunds partly offset the retailers' own costs.

"These results, which exceeded our expectations even before considering the benefit from tariff refunds after related reinvestments, are a testament to the strong execution, strategic direction, and continued dedication of our team," said Todd Vasos, Dollar General's chief executive.

What Wall Street is watching next

Analysts have grown more constructive on both names over the course of the year as the trade-down thesis solidified and the tariff picture shifted. Citi's Paul Lejuez, who covers the sector, has pointed to Dollar General's limited direct tariff exposure — he estimates only about 10% of its sales are affected — as a reason for optimism, while arguing Dollar Tree's changed tariff landscape gives it more room to raise prices on multi-price items without spooking value-focused shoppers. Whether that translates into sustained earnings growth once the refund-driven boost fades from year-over-year comparisons is the question investors are now pricing in.

Dollar Tree Chief Executive Mike Creedon framed the quarter around the durability of the traffic gains rather than the accounting tailwind. "What continues to set Dollar Tree apart is our ability to deliver value, convenience, and discovery all in one trip," he said in the company's earnings statement.

The results also matter well beyond shareholders. Dollar General operates roughly 20,000 stores and Dollar Tree and Family Dollar run several thousand more, together employing hundreds of thousands of workers in small towns and urban neighborhoods where the chains are often the closest option for groceries and household basics. Stronger comparable sales and raised guidance typically translate into continued store openings and remodels — Dollar General has kept up an aggressive new-store cadence in recent years — while a soft third-quarter outlook, as Dollar Tree just delivered, tends to make investors more cautious about capital spending plans even when the underlying same-store trends look healthy.

Both chains will report next in late November, when this quarter's tariff-refund benefit will have largely cycled out of their results and investors will get a cleaner read on whether traffic growth, comparable sales, and margin gains can hold up on their own. For now, the split verdict from Thursday's trading suggests investors are willing to reward earnings power that looks likely to persist — and to punish guidance that leans too heavily on a refund check that will not come again.