Dollar General (DG) vs. Dollar Tree (DLTR)
Two value retailers moved in opposite directions. Dollar General (DG) won. Second quarter sales rose more than 5% to $11.29 billion, topping expectations. Earnings came in at $2.48 per share, also above expectations. Comparable sales (comps) grew 3.5%, better than expected. Sales grew across all major categories: consumables, seasonal goods, apparel, and home products. Management stressed that the business beat expectations even after accounting for tariff refunds - the concern investors have is how strong the earnings growth is once those refunds are stripped out. DG delivered a cleaner quarter with stronger traffic and broad category growth, and raised its annual outlook. It now expects full-year net sales growth of 4% to 4.3% and same-store sales up 2.5% to 2.9%.
Dollar Tree (DLTR) was the weaker name. The quarter itself was solid, but the forward view is soft. Revenue rose 7% to $4.89 billion and comps increased 3.7%, beating expectations. Nearly all of that gain came from customers spending more per visit, not more visits - traffic looks better at DG than at DLTR. Tariff refunds also distort DLTR's numbers. For the third quarter, DLTR expects adjusted earnings of just $0.80 to $0.95 per share, well below Wall Street. For the full year, tariff refunds still bring a net benefit, but that benefit cannot be counted on to continue.
Tariff refunds across retail
Tariff refunds started showing up in results this earnings cycle. Abercrombie & Fitch (ANF) reported about $100 million. Target (TGT) had nearly $1 billion. Others include Kohl's (KSS), Ross Stores (ROST), Home Depot (HD), Amazon (AMZN), and Walmart (WMT). Walmart (WMT) said it will use its refund to cut prices. Home Depot (HD) said it will use its refund to offset its own costs. The key open question is what these refunds will mean for the next quarter, since they cannot recur.
Best Buy (BBY)
Best Buy (BBY) dropped 9%, worse than its pre-market decline. It posted a clear second quarter beat and raised its full-year outlook, yet investors question how lasting the improvement is. Adjusted earnings were $1.47 per share versus the $1.38 Street estimate. Revenue was $9.78 billion, better than expected. Comps rose 4.1%, well above its earlier forecast of just 1% growth. Electronics demand improved, with strong demand for computers and mobile devices. Newer categories - AI glasses and trading cards - more than doubled sales from a year ago. The stock still fell because BBY received a tariff refund benefit. That raises the earnings-quality question: how much of the profit improvement came from the underlying business versus the refunds, how long the refunds will last, and what happens when they end. Investors are stepping back for that reason.
HP Inc. (HPQ)
HP Inc. (HPQ) fell nearly 8%. The headline numbers beat, but a warning on PC shipments overshadowed them. Adjusted earnings were $0.83 per share, a solid beat. Third quarter revenue rose to $15.7 billion, well above estimates. The problems: falling PC shipments, shrinking margins, and a softer-than-expected fourth quarter outlook. PC unit shipments fell 16%, partly because higher prices push customers to buy fewer machines, and printer demand has weakened. Commercial PC sales were a bright spot, rising 22%, but not enough to turn investors bullish. The overall shipment decline raises questions about how durable revenue growth is from here.
Market note
Salesforce (CRM) and Nvidia (NVDA) both performed well and support the Dow Jones Industrial Average on the upside, yet Dow futures were lower. Most Dow names traded lower, many down 1%, with only about five of the Dow 30 in the green. This matters because the index is weighted and CRM and NVDA carry weight within it.
