Discount retailer Dollar Tree (DLTR.US) reported better-than-expected second-quarter results on Wednesday and raised its full-year sales and profit forecasts, as consumers across income levels increasingly turn to its stores for affordable groceries, apparel, and home décor products. However, the company expressed caution regarding its third-quarter outlook. As of press time, Dollar Tree shares fell nearly 5% in pre-market trading on Wednesday.

The financial results showed that for the second quarter of fiscal 2025 ended August 2, the company's sales increased 12.3% year-over-year to $4.6 billion, surpassing analysts' consensus estimate of $4.5 billion. Comparable store sales grew 6.5%, beating analysts' expectations of 5.4%, driven by increases in both customer traffic and average transaction value. Adjusted operating profit rose 7.4% year-over-year to $236 million, while adjusted earnings per share climbed 13.2% to 77 cents, significantly exceeding analysts' consensus estimate of 42 cents.

Dollar Tree's low-price advantage—with approximately 85% of merchandise priced below $2—along with smaller package sizes, has helped the company attract value-seeking middle and higher-income consumers beyond its core low-income customer base. The company is opening more new stores under the "Dollar Tree" brand while also converting some locations to multi-tier pricing structures to compete against major retailers like Walmart (WMT.US) and e-commerce platforms.

Due to the impact of tariffs and increased discounts on certain merchandise, Dollar Tree's cost of sales rose from $2.67 billion in the prior year period to nearly $3 billion in the second quarter. The company indicated that performance is expected to be affected by near-term challenges, including cost increases due to effective tariff fluctuations in the second half of 2025.

Dollar Tree raised its full-year fiscal 2025 sales forecast to $19.3-19.5 billion from a previous range of $18.5-19.1 billion. The company also raised its full-year adjusted earnings per share guidance to $5.32-5.72 from a prior range of $5.15-5.65.

However, the company's third-quarter outlook appeared somewhat pessimistic. Dollar Tree expects third-quarter adjusted earnings per share to be similar to the prior year period, while current analyst consensus calls for 18.8% growth.