[Operator Instructions] Our first question today is coming from Matthew Boss from JPMorgan.

Congrats on a nice quarter.

Thanks, Matt.

So Mike, can you elaborate on the cadence of the comp trend you saw in the quarter? Traffic turned positive a quarter earlier than your plan 3 months ago. So can you talk to drivers of that outperformance and impact from the 40th anniversary $1 price points? And lastly, can you share where your comp stands quarter-to-date today?

Sure, Matt. Thanks. First of all, let me start by saying the team did a fantastic job in Q2. If we rewind the clock to the beginning of the year, we had the right strategy given the setup, and we were confident traffic would turn positive much quicker than it did with Break the Dollar. What we saw in Q2 is proof point that a better assortment in better-run stores while talking to our customers in ways we never had before really drives the business. And traffic was the headline in Q2. The comp strengthened as the quarter progressed, and traffic improved sequentially and ultimately turned positive. The most encouraging aspect of the performance was that it wasn't driven by any one category or one event, but we saw broad-based improvement across the business, and that gives us a ton of confidence in the strength of the underlying trend and the underlying business. As I mentioned in my script, not only did we see traffic trends get stronger by month, the 2-year traffic trend also strengthened. So relative to our previous expectations of positive traffic in the back half, we're running about a quarter early. And when I step back, I really like what I see. I like that the strategies we've laid out are working. On the 40th anniversary $1 price points, I think it's important to note that these are really small in scale. For those of you, and I know you do, shop our stores, it's a handful of rotating SKUs and endcaps. And when we look at the data, we definitely think the 40th brought some excitement, some newness, there's a halo that goes with that, but wasn't really a key driver of the comp. On quarter-to-date trends, I don't typically comment on that. But what I would say is that as we put our outlook together, we incorporate everything we know today. And I'm really encouraged by the momentum we continue to see in the business. The team will stay focused on execution and delivering value, making sure we're convenient with great checkout and that thrill-of-the-hunt discovery that Dollar Tree is known for.

Great. And then, Stewart, a lot of moving parts on margins this quarter. Excluding the net tariff impact, can you walk through what drove the underlying earnings beat relative to your outlook that you shared back in May?

Thanks, Matt. Yes, look, lots of moving parts. There is a great deal of complexity. We're going to try to make that simple. Look, the short answer to the question here is that ignoring the net tariffs, the benefit of those tariffs, we sold more than we expected, and we did that at better margins. So that's the good news. On sales, the 3.7% comp was above the high end of the Q2 outlook, and that just -- that drove additional gross margin dollars, a positive. But the more meaningful driver of our performance was in our margin delivery. And relative to -- if you look back at our Q2 outlook, we had 3 main areas of gross margin favorability: shrink, freight and fixed costs. On shrink, as we highlighted in the prepared remarks, we continue to run better stores, and that's showing up in favorable inventory counts. Shrink was much better than last year and even better than we expected. Shrink also, by the way, benefited from a cumulative adjustment to the reserve, which provided a benefit in the quarter. And just to help with that, the split here is about 2/3 from the inventory results and about 1/3 from the reserve adjustment. Freight was modestly better than we assumed, and that was mainly because we had better-than-expected fuel rates. But the higher sales comp actually allowed us to drive leverage on our fixed costs, which included occupancy and distribution costs. And then on SG&A, since we generated a higher comp, we also generated higher fixed-cost leverage on that SG&A. So we had better sales, we had better gross margin, and we had better operating margin. And I want to point out also that the share count did not have any meaningful impact on the results that I've just spoken to.

Next question is coming from Seth Sigman from Barclays.

Nice quarter. It looks like the new high end of your EPS outlook, the $8.05 or I guess it's $7.45 ex the net tariff refunds, it mostly just flows through the Q2 beat and the lower share count. I just want to make sure that's right. And then related to that, your prior outlook embedded a higher tariff rate versus the current 12.5% that you mentioned. Where is that upside from lower tariff rates? How is that flowing through?

Stewart here. A good question. So first of all, you're correct, we did pass through the beat and the benefits of the lower share count in our outlook despite the current market volatility and inflation. And if you strip out the net tariff impact of the tariffs, which was $1.31 in the quarter, you get to $1.39 for underlying EPS in the second quarter. And that, of course, is well ahead of the $1 to $1.15 outlook. And the way I calculate it is if you take the $0.24 beat at the high point, and I'm using the high point because we shrunk the range, add about $0.11 of benefit to that $0.24 from the lower share count for the year and then add another $0.04 for the net benefit of lower TSA with the positive impact from lower interest expense, and you get to about a $0.39 benefit coming out of Q2. And since last quarter, the high point of our outlook was $7.10, you take that $0.39, add it to the $7.10 and then you take the net full year benefit of $0.60 for tariffs, and you get right up against the high point of the EPS outlook. So I know there's a lot in there, but that's how you do the math. More importantly, let me address just the tariffs. I'll remind you that for the back part of the year, we had assumed a 20% tariff rate when we reported back in May, that is what the administration was telling us. And as you know, the tariff rates now are lower, somewhere around 12.5%. So we get some benefit from that lower tariff rate in the back half of the year. But there are 2 offsetting factors in cost of sales, which absorb that benefit. First, we are anticipating that the sales growth in the back half skews a little bit higher in consumables. And while that is really a great positive outcome from a traffic and customer relevance standpoint, that higher consumables will drive a slightly lower margin mix. And so the mix -- some of that mix dynamic is absorbing tariff benefits. More powerfully, we've really been focused in the back half on protecting value for the customer. And so while tariff rates have come down, we're also navigating some higher inflation and on portions of our assortment. And we're seeing some pressure in supply chain, of course, because of fuel. So rather than passing those costs on to the customer, we've taken advantage of the fact that we're getting that lower tariff rate in and that tariff rate is absorbing inflation and helping us to maintain value across key categories. We think that's helping our traffic. And of course, we think that's also driving market share gains. So looking at this, I think we've got the right balance between driving the near-term results and strengthening the business. And the good news, I mean, this is really good news, is that our outlook has not included the tariff refunds to offset any of the current inflation. We're taking those higher costs in our run rate, and we're offsetting that higher volatility. So again, I know there's a lot there in the financials this quarter, but hopefully, that lays that out to you.

Okay. Yes, that's very helpful. I did want to follow up on the tariff refunds, and perhaps you can give us a little bit more color on how you're deploying those funds? And what type of return are you assuming in this guidance for the spending of that? And if there's any context on how that's already started to play out as you start to deploy that?

Yes, sure. Seth, I'll start, and then, Stewart, if you want to jump in on the returns. As we talked about in the script, we're thinking about tariff refunds as a way to really enhance our strategy. What it gives us is the opportunity to take the initiatives we've laid out and accelerate them. We also use a small portion of the refunds tactically to fund our 40th anniversary $1 price point strategy, which, as I mentioned, created a ton of buzz and excitement for our customers, really supports that thrill of the hunt. The investments are focused, as we all are, on enhancing value, convenience and discovery. So that includes improving our assortment with incredible values, making our stores easier to shop by upgrading in-store signage and then the marketing piece of it, where we're talking to our customers in ways we really never have before and scaling those marketing and digital capabilities. These are all areas that we believe can really increase customer engagement and accelerate our traffic flywheel. The refunds were significant. We're trying to be as thoughtful as we can about how to deploy them. So the investments today provide a lasting return. And Stewart, if you want to touch on those returns?

Yes. Thanks, Mike. Look, just a couple of quick points. We really did not bake in any real return in the incremental spend. And there were 2 reasons for that. First, we're in an environment where many retailers are reinvesting back in price, and we want to remain competitive. And so all boats may end up in the same space. Second, a number of the investments we're actually making are in areas, particularly in SG&A, where we're talking about store standards or where we're talking about messaging. These are places that are going to help to build momentum in the business. And you wouldn't ordinarily expect to see a sudden rush of benefit in. But the way we've looked at those is to try to make sure that these are costs that are going to have lasting benefit, but that are not lasting in terms of expense. So as Mike said, we're using this as an opportunity to accelerate and enhance the investments we are making in our business to drive initiatives across our stores. There could be some upside in this. But I think for the moment, it's a better approach to saying that we're going to be cautious in the way that we estimate our outcomes.

Next question is coming from Rupesh Parikh from Oppenheimer.

And also, congrats on a nice quarter. So on store standards, you mentioned that about 1/3 of stores are not meeting your internal benchmarks, down from about half last October. How should we think about the opportunity from here to not only maintain those standards, but improve them?

Yes, Rupesh, thank you. At Investor Day last year, this was a critical point that we made. We were really clear that when you improve store standards, you improve the entire foundation of the company. And it's the transformation that unlocks the full potential of this business. We knew we had meaningful opportunity across the fleet, and we laid out a very disciplined approach to address it. We've got a chart in the investor slide deck that shows what this team has accomplished so far. And so I want to make a few points on this. First, the progress we've made is encouraging. But we certainly don't view getting from roughly half the chain to about 1/3 of the stores from the opportunity bucket up as crossing the finish line. We view this as evidence that what we're doing is working and gaining traction. So if you would think about this, early on, a lot of your efforts are just focused on addressing the most visible opportunities, and we've made meaningful progress there. But there is still a significant opportunity to elevate the standards across the entire fleet. Even many of our better-performing stores have room to improve, whether that's merch execution or in-stock levels, recovery, just the overall shopping experience. And those incremental improvements when you're talking about 9,500 stores really matters. It's not just about going from an opportunity store to a good store. We want to go from good to great and great to G.O.L.D. We want to raise the bar on the entire fleet. And when you do that, that's the difference maker for Dollar Tree. And just the other point I'd make is I think a lot of retailers can make progress, they can get focused and make short-term progress. The key to all this and the way we've built it is that we're going to sustain these elevated standards. That's the harder challenge. When you look at G.O.L.D. and our G.O.L.D. standards, we know where we want to get our stores. We know where we want to keep our stores, and our culture of accountability around execution is what gives us confidence that we'll get there. Ultimately, you run better stores, you give a better customer experience, that drives traffic, sales and productivity over time. The positive traffic trends we saw this quarter give us confidence that customers are noticing the improvements. And with a long runway to go, it gives us confidence in what we're doing in our future. I'm very passionate about this point.

Great. Then, I have a quick follow-up question for Stewart. So in terms of the updated outlook, can you help us think through some of the puts and takes on the gross margin and SG&A line for Q3 and Q4? It would be helpful if you can provide any color, mix impact, freight fuel, tariffs and shrink as well.

Yes. Thanks, Rupesh. You said a quick question. There's a lot here. So I'm not sure it will be a quick answer, but let me unpack this. And I really want to take some time to talk about the tariffs because -- we've had a great quarter. We're delivering a little bit faster. And we -- I don't want to confuse the reinvestment with really the underlying performance of the business, which is good. So let me take this apart here. We spent a lot of time trying to unpack the tariffs so that there's transparency, and you can see the business that sits underneath that. And if you look at the supplemental deck, we laid out the full year in that deck so that you could understand what the tariff impacts are, and you can separate them from what I'm saying about the rest of the business. So let me just take you through the items, starting with the refunds, the reinvestment and the duties, you get a picture of that. And then I'll come and I'll talk about the gross margin and the SG&A and give you color on some of the other items that you asked about. So when I talked about the prepared remarks, we had received about $369 million of refund in Q2, and that benefited gross margin in Q2. And for the full year, we currently expect to reinvest approximately $210 million. So you get a big benefit in Q2, and you get the expenses coming in the back part of the year. So $210 million that we're going to reinvest for the full year, that's $80 million impacting gross margin and $130 million impacting SG&A. But of the $210 million, you'll recall, maybe as I went past that in the prepared remarks, we reinvested $37 million in Q2. That had $22 million in COGS and $15 million in SG&A. So think about that, the back half then -- I'll just give you the numbers. The back half will have a gross margin impact of $58 million in COGS, in gross margin and $115 million in SG&A. And keep in mind that the last number, the SG&A number, includes the $40 million of charity donation that Mike talked about. So when you combine all these items on an EPS basis, the net benefit is about $0.60 for the year. And that includes, by the way, $14 million or so that I spoke to, a positive income in the $383 million refund. But -- so $0.60 for the full year. So if you now accept that all the tariffs, you put those aside, the color I'm now going to give you completely excludes any of the puts and takes I've just given you on tariffs, we expect -- we said we expected gross margin to be up for the year, and that means up modestly for the year. And that means that there's going to be some pressure in the back half. And specifically, we expect the gross margin to be flattish in Q3, which benefits from cycling last year's inventory write-off. And we expect Q4 that gross margin will be down. Now what drives that? In both quarters, we have higher freight costs driven by higher fuel prices. And we had, last year, you'll recall, in the back half of the year, very low freight prices. So we're cycling some of that. And we have that broad-based inflation that's coming through our merch costs. I think a lot of that is tied probably to fuel, but we're seeing broad-based inflation. There's a lesser impact on the mix shift to consumables. It's mostly driven by the other 2. And so while you get a little bit of benefit from the current lower tariffs, they're helping, but they don't offset the negative impacts of freight and inflation. And when I'm talking about tariffs, I'm not talking about the refunds now. I'm talking about the ongoing tariff rates. So there's a lot here, forgive me. I want to be really clear on the merch costs because if we're talking about these higher freight costs, we're talking about these higher fuel prices, to the extent that those are sticky -- and of course, the market is volatile. To the extent those are sticky, we'll deploy the 5 levers. We've done that repeatedly over the last couple of years. You can see that we know how to manage to the margin. On shrink, of course, we're not expecting the same magnitude in the back half of the year because most of the inventories have been taken. So I think that's the picture on gross margin. Let me go to your last point, which is SG&A. And I'm talking about SG&A inclusive of the TSA income. We said in the past, we're cycling the red-stickering initiatives from last year, and that's about $33 million a quarter. We see several offsets to this benefit, which includes lower TSA income as we wind down the TSA. We've got some higher utility costs, and we've got some higher marketing costs where we've chosen to invest. But the good news on SG&A is we are controlling the controllables in SG&A, and we continue to see opportunity. So there's a lot there. But if I just summarize it by saying I've broken out the tariffs. You will see those higher reinvestments in the back part of the year, which will reduce our EPS in each of the quarters. You should add that back, and that's probably about 2/3, 1/3 just as a rough guide. On the margins, we're managing these higher costs as part of our run rates. I've laid those out for you. And on SG&A, we're in charge of the SG&A items that are controllable.

Our next question is coming from Bobby Griffin from Raymond James.

Congrats on a good quarter. Mike, I wanted to circle up first on the $1 price points that you referenced. Is that something we should expect on a go-forward basis? And how are you thinking about those items in the context of the multi-price strategy? Anything that would prevent that from being part of the assortment going forward?

Yes. It's a good question, Bobby. I'll tell you, like our founders, everything we do is designed around delivering value, convenience and discovery for our customers. Those are the principles at the heart of Dollar Tree, and they guide every pricing decision we make. We're pleased with where our multi-price strategy stands today. Multi-price gives us the flexibility to deliver the right item at the right price while always maintaining that compelling value proposition across the store. So the thrill of the hunt can come from finding a $5 hammer or a $3 seasonal item or a $1 pool noodle. What matters is that the customers know they're getting outstanding value no matter what the price point is. So with that context, looking ahead, there's nothing preventing us from maintaining a $1 price point within the assortment. As Stewart said before, we buy to a margin. When we can offer a $1 item and still deliver the value and economics we're looking for, we'll absolutely do that. Ultimately, multi-price is not about moving away from our heritage. It's about giving us more flexibility to drive the value, convenience and discovery that has always been our heritage and will always be our heritage.

Okay. That's helpful. I appreciate it. And then just quickly as a follow-up, Stewart, on the helium shortages, modest comp headwind here in 2Q. Just how should we think about that in terms of the back half and what's assumed in the guide from that aspect?

Yes. I'll actually jump in on that. I'm very close to it. I will say that the team has done a great job on the merch side and on the store side, navigating the helium shortage. As we mentioned in our prepared remarks, helium availability reduced sales by about $15 million or 30 basis points of comp during Q2. The impact was concentrated in our party business. Balloons are an important traffic driver for that business. And when customers come in for balloons, they often purchase other items for celebration and events. So the impact definitely extends beyond the balloon sale itself. But what I think is really important is we don't have a demand issue here. The challenge has been the availability of helium across the industry in these pockets where we've seen some challenges, and that's limited our ability to fully meet the demand. So we're working and we've worked closely with our suppliers. We've taken steps to manage through the disruption. Supply remained constrained throughout the quarter. And as we look to the back half of the year, it's still uncertain. And so because of that, we're not assuming a recovery in the near term in our numbers. But we work this constantly. And I think it's important to note that when you take that impact and you step back, we're encouraged by the underlying performance of the business. You look at discretionary despite this helium headwind, broad-based strength across a number of departments and really a strong discretionary on top of a very strong discretionary last year.

I appreciate the details on both aspects. Best of luck here in the back half.

Next question today is coming from Michael Lasser from UBS.

Obviously, there's a lot of moving pieces with all that's going on within the margins, especially. So my question is a 2-parter. One is you are pointing out that the gross margin should be down year-over-year in the fourth quarter. Most likely, the investment community is going to extrapolate that into next year as some of these persistent costs linger around. You have made the case that you can use your 5 levers to offset that. Now is there anything different about this environment that we should at least not anticipate the gross margin will be down for a period of time because you do have a lot of competitors who are investing in price and that could constrain your ability to pass along further price increases?

Yes. I mean, Michael, let me pick that up. First of all, I've seen a lot of earnings releases where people are talking about using tariff refunds to offset back half inflation. And I want to point out that's not what we've done here. All the inflation that we've discussed is sort of directly in the run rate. And we wanted to do that because we want you to see what the underlying business looks like. Having said that, as you know, of course, we have very successfully managed volatility these past couple of years using those 5 levers. And we're confident that we can manage to the margin and work to the algorithm that we laid out at our Investor Day. So the picture for the back half of the year is, of course, as painted, but we want to be mindful also that because of the volatility, these things can move around a lot. And so just imagine that we see changes in tariff or more importantly, we see a cessation of hostilities in the Middle East, and we see a dramatic reduction in fuel costs. These could change that inflation picture quite dramatically. And it doesn't make sense for us, given the strategies that we employ and the value we want to drive for our customers, to take any sort of premature and reactive kinds of decisions. We're driving a great result for the year. We've absorbed these kinds of inflations in that great result, and we think it's better to stay the course until we can see very clearly what the result is going to look like and our merchants and our cost base will respond to what we need to drive the right results for next year.

Okay. And another way of basically asking the same question, so I apologize for that, is you've, at your Investor Day, laid out an algorithm that will generate substantial earnings growth moving forward. Given these inflationary pressures, coupled with the unique investments that you are making this year and the funding sources from those investments, will 2027 be a year, in light of all that, where you think you can generate the algorithm? Or should we, as the outside, be thinking next year is going to be a sub-algorithm year given that you may have to digest some of what happened this year?

Yes, Michael, we feel confident in our algorithm. We think Q2 was an incredible proof point of that with traffic turning earlier, I think it demonstrates the customer response. We're not giving '27 guidance today, but we feel really good about the initiatives that we outlined at Investor Day, the work we've done. And what you're starting to see is these initiatives build upon each other and work in conjunction with each other. I call it better, better, better. So it's a better assortment in better-run stores and now with better marketing and more to come on that. And so when I look out at the multiyear horizon, I'm excited about what we're doing, and the proof points are telling me we're doing the right things, we need to keep executing and there's much strength ahead.

Yes. The only thing I'd add to that, Michael, is that the sort of pressure you're seeing in the back half, I mean, that inflation driven, I mean, everybody is feeling that. So we're not going to be alone in that. I think what separates us in my mind and why I feel confident about the long-range algorithm is that we're taking the right choices. You're seeing those results in this quarter, and we're giving you the kind of transparency because we have that belief.

Next question is coming from Edward Kelly from Wells Fargo.

I was hoping that you could maybe unpack the second half a little bit from a comp perspective and what you're thinking there. Obviously, your traffic compare gets a lot easier. Ticket compare is a little bit harder there. Just sort of how you're thinking about sustaining sort of the 2-year on traffic? And then maybe also just additional color on the mix side in discretionary and what you think is causing that softness there.

Yes, sure. Thanks, Ed. I'll take that. I think as you look at this sustaining, it really goes to the initiatives we've seen. Both -- everything we laid out at Investor Day was designed to drive both traffic and ticket. And while ticket carried the water in the first half of the year, as you lap last year's tariff-related price actions, we know it's ticket. And so what gives me confidence in the second half of the year is, yes, it's going to be skewed towards ticket. But seeing that -- I'm sorry, skewed towards traffic, excuse me -- seeing that traffic come earlier and seeing the positive Q2, and I mentioned we were pleased with the start to Q3, that gives me confidence in that traffic really helping to drive. But as you start to smooth these things out and you look at the long-term algo, all the initiatives we're executing on are designed to drive both. And I think we've got some really good proof points as you look at the first half of the year, and that gives us the confidence that traffic will carry the day in the second half. And that, as we normalize over time, we really get the strength of both ticket and traffic because that's what we're designing it to do. In terms of the mix, my Brockton will come out a little, and I won't apologize for a 1.6% comp in discretionary. When you look at, it's on top of a 6.1% from last year. So -- and the consumables comp was incredible. I said it in the prepared remarks, this wasn't a question of consumable being the story and oh, no on discretionary. This was a story about discretionary being strong and consumables being very strong. And add back in that helium. I mean, when you look at 30 bps, that takes discretionary to a 2% comp in the quarter. So -- and remember, Q2, there's not a lot of Dollar Tree type events in Q2. So give me Halloween, give me Thanksgiving. Let me get to Christmas. And I think that consumables-discretionary mix really is strong for us and is constantly the magic of Dollar Tree.

Great. And just a follow-up, Stewart. Could you unpack freight for us? Just the incremental headwind, what is sort of fuel surcharge? How we should be thinking about what's going on with the underlying contract rates? There's been some talk about driver shortages. I don't know what type of visibility you have on renewals. Just any help you could provide there?

Yes. Look, I'll just go back. Nothing's really changed from the previous quarters in terms of the composition there. We did enjoy very low, particularly ocean freight rates at the end of last year, which we highlighted in our call. So there's a bit of lapping that. But ignoring that for a second, as we mentioned, we got through all of our -- or most of our renewals, and the base rates were not substantially different from last year. What is different is really this fuel -- the fuel surcharge that's coming through is very, very meaningful. And that's going to continue as long as the fuel prices are elevated. There is an impact from drivers. It's not nearly as much as fuel. Really, fuel is the driver here. I mean, sort of good news, bad news. Nobody wants to see higher fuel prices. But to the extent that we see things settle out in the Middle East, and that those fuel prices can come back pretty quickly, and that will be felt in our freight rates pretty quickly because that's all set up as a surcharge with readjustment time frames that are actually quite short.

Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Thank you, everyone. We're excited about the quarter. We're excited about the future of Dollar Tree, and we appreciate your time this morning on the call. Thank you.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.