Dollar Tree's tariff mitigation efforts will compensate for costs - J.P. Morgan

 Dollar Tree’s (NASDAQ:DLTR) warning of a $70M hit to Q2 cost of goods sold underscores that no matter how compelling the value proposition, no company is shielded from the costs and uncertainties tied to U.S. import tariffs.

The company beat on nearly all metrics with sales climbing 11.3%, traffic up 2.5%, average ticket increasing 2.8% and profits rising 2.4%, all pointing to the strength of the company’s operations and value to consumers.

However, shares were chased as much as 11% lower (before recovering losses on Thursday) as the forecasted cost of tariffs rattled investors.

“We're expecting a transitory impact on our near-term profitability as elevated costs run through our P&L in Q2, while the benefits and profit recovery from our mitigation efforts should materialize later in the year,” Dollar Tree CEO Michael Creedon told analysts on the company’s earnings call.

For J.P. Morgan’s Matthew Boss, tariff mitigation efforts will more than compensate for any near-term costs, and the company will return to double-digit EPS “compounder” with top- and bottom-line drivers in place at the Dollar Tree banner. Consequently, Boss upgraded Dollar Tree (NASDAQ:DLTR) to Overweight from Neutral with a 54% hike to his price target to $111.

“Taking a full year view, we believe that by successfully deploying our 5 levers, we will be able to mitigate most, if not all, of the potential earnings impact from higher tariffs, assuming the current levels remain in place,” Dollar Tree’s Creedon added on the call.

By employing this toolbox of “5 key levers” -- which includes negotiating with suppliers, adjusting product specification, moving country of origin, dropping “non-economic” items, and leveraging multi-price categories -- Boss thinks Dollar Tree (NASDAQ:DLTR) will not only mitigate the $70M COGS tariff headwind and end the year net-neutral with respect to tariffs, but enter the first half of 2026 with a wrap-around tailwind.

Despite Wednesday’s post-earnings hiccup, Dollar Tree (DLTR) continues to outperform its competitors with shares up 14% over the past month versus +11% for Amazon (AMZN), less than +1.0% for Costco (COST), and -1.3% for Walmart (WMT).

And analysts are largely bullish on the stock with Seeking Alpha authors and Wall Street analysts sharing a Buy rating. Seeking Alpha’s Quant rating views Dollar Tree with a more cautious Hold rating and Quant score of 3.17 out of 5.

https://www.msn.com/en-us/money/companies/dollar-tree-s-tariff-mitigation-efforts-will-compensate-for-costs-j-p-morgan/ar-AA1GapV1