Grade: F — Major Red Flags
Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles
Data: SEC EDGAR 10-K (Filed 2026-03-16, FY ended January 31, 2026) + Yahoo Finance
Auditor: KPMG LLP — Unqualified opinion (1 critical audit matter: self-insurance liability estimation)
One-line verdict: Dollar Tree earns an F grade from a revenue/cash flow divergence and balance sheet leverage, but the underlying story is one of radical transformation. The company sold Family Dollar in late FY2025, taking cumulative impairment charges exceeding $5.7B on that business over two years ($4.1B net loss from discontinued operations in FY2025, $2.3B in FY2024). What remains is the Dollar Tree banner — a business generating 36.4% gross margins, $2.5B in operating cash flow, and $1.4B in free cash flow. Revenue grew 10.4% while CFFO declined 11.5%, triggering the screening failure, but this reflects the Family Dollar disposal mechanics. M-Score data is unavailable.
| Metric | Result |
|---|---|
| ❌ Red Flags | **2** (Revenue vs CFFO divergence, cash-to-debt) |
| ⚠️ Watch Items | **1** (SG&A/Gross Profit 77.4%) |
| Checks Completed | **14/18** (4 N/A: DSO, AR, impairment, M-Score) |
| Beneish M-Score | **N/A** (insufficient data) |
| Auditor | KPMG LLP — Unqualified opinion, 1 critical audit matter |
Post-Family Dollar: A Different Company
The filing states Dollar Tree sold Family Dollar in late FY2025. The income statement from the 10-K now shows Family Dollar as discontinued operations:
| Metric | FY2024 | FY2025 | FY2026 | Trend |
|---|---|---|---|---|
| Net Sales (continuing) | $16.8B | $17.6B | $19.4B | +10.4% |
| Income from Continuing Ops | $1,265.8M | $1,042.5M | $1,225.3M | Recovering |
| (Loss) from Discontinued Ops | ($2,264.2M) | ($4,072.6M) | $57.2M | Family Dollar gone |
| Net Income (total) | $1,615.4M | ($3,030.1M) | $1,282.5M | Volatile |
| Gross Margin (continuing) | 37.5% | 35.8% | 36.4% | Stabilizing |
Per the income statement: "Net sales $19,395.7, Other revenue $16.1, Total revenue $19,411.8." The continuing Dollar Tree business grew revenue 10.4% and expanded operating income to $1,653.1M.
The Family Dollar impairment was catastrophic: the 10-K discloses "an impairment charge of $1.4 billion" on the Family Dollar trade name in FY2024, "driven primarily by a decrease in the royalty rate assumption based on lower future growth rates and earnings before interest and taxes (EBIT) margin assumptions."
Cash Flow: Healthy Continuing Operations
| Metric | FY2024 | FY2025 | FY2026 |
|---|---|---|---|
| Operating Cash Flow | $1,614.8M | $2,862.5M | $2,534.0M |
| Net Income (continuing) | $1,265.8M | $1,042.5M | $1,225.3M |
| **CFFO / Net Income** | **1.00** (est) | **N/A** (loss year) | **1.98** |
| CapEx | $643.7M | $1,300.5M | $1,134.0M |
| Free Cash Flow | $971.1M | $1,562.0M | $1,400.0M |
CFFO/NI of 1.98 on continuing operations is strong. The $2.5B CFFO includes some Family Dollar wind-down effects, but the core business is generating robust cash.
Per the cash flow statement: investing activities consumed $648.7M (down from $1,249.4M) and financing activities consumed $2,556.9M (up from $411.3M), reflecting debt repayment and share repurchases as the company returns Family Dollar sale proceeds.
The 18-Point Screening
Revenue Quality
| # | Check | Result | Detail |
|---|---|---|---|
| A1 | DSO Change | — | Insufficient data |
| A2 | AR vs Revenue Growth | — | Insufficient data |
| A3 | Revenue vs CFFO | ❌ | Revenue grew 10.4% but CFFO declined -11.5% |
A3 — Revenue/CFFO divergence. Revenue grew 10.4% while operating cash flow declined 11.5%. This is primarily a composition effect — the prior year's CFFO included Family Dollar contributions that are now removed from continuing operations, while continuing Dollar Tree revenue grew organically. This is a transition-year anomaly rather than a fundamental cash flow problem.
Expense Quality
| # | Check | Result | Detail |
|---|---|---|---|
| B1 | Inventory vs COGS | ✅ | Inventory -6.6% vs COGS +9.4% |
| B2 | CapEx vs Revenue | ✅ | CapEx -12.8% vs revenue +10.4% |
| B3 | SG&A Ratio | ⚠️ | SG&A/Gross Profit = 77.4% (exceeds 70%) |
| B4 | Gross Margin | ✅ | 36.4%, +0.6pp |
B3 — SG&A at 77.4% of gross profit reflects the reality of operating 16,000+ stores. SG&A of $5.47B is driven by store labor, occupancy costs, and distribution expenses. This is the structural cost of discount retail, not a sign of waste.
Inventory declining 7% while COGS grows 9% means Dollar Tree is selling through inventory faster — a healthy signal post-transformation.
Cash Flow Quality
| # | Check | Result | Detail |
|---|---|---|---|
| C1 | CFFO vs Net Income | ✅ | CFFO/NI = 1.98 |
| C2 | Free Cash Flow | ✅ | FCF $1.4B, FCF/NI = 1.09 |
| C3 | Accruals Ratio | ✅ | -9.3% |
| C4 | Cash vs Debt | ❌ | Cash $718M covers only 10% of debt $7.1B |
C4 reflects the lease-heavy capital structure of a 16,000-store retailer. The majority of "debt" is operating lease liabilities. Traditional funded debt is a smaller portion. Debt/EBITDA of 3.0x is manageable.
Balance Sheet
| # | Check | Result | Detail |
|---|---|---|---|
| D1 | Goodwill + Intangibles | ✅ | $423M = 11% of equity |
| D2 | Leverage | ✅ | Debt/EBITDA = 3.0x |
| D3 | Soft Asset Growth | ✅ | Other assets -3.9% |
| D4 | Asset Impairment | — | No write-off data |
D1 — Clean after Family Dollar disposal. Goodwill of $423M is minimal. The massive Family Dollar goodwill and intangibles have been removed through impairment and divestiture. This is a structurally cleaner balance sheet than pre-disposal.
Acquisition Risk
| # | Check | Result | Detail |
|---|---|---|---|
| E1 | Serial Acquirer FCF | ✅ | FCF after acquisitions positive |
| E2 | Goodwill Surge | ✅ | Goodwill+Intangibles 0% YoY |
Manipulation Score
| # | Check | Result | Detail |
|---|---|---|---|
| F1 | Beneish M-Score | — | Insufficient data |
Key Risks from the 10-K
1. Family Dollar — The $5.7B Mistake
The cumulative losses from discontinued operations over FY2024-FY2025 exceed $6.3B. Dollar Tree acquired Family Dollar in 2015 for approximately $8.5B. The filing's impairment disclosures confirm this acquisition destroyed billions in shareholder value. The transition services agreement income of $54.9M in FY2026 suggests the company is still providing services to the divested entity.
2. Multi-Price Strategy Execution Risk
Dollar Tree is transitioning from its traditional "$1.25 price point" model to multi-price offerings. The filing discusses "multi-price offerings and product assortment" as a strategic initiative. Over 8,800 stores now offer Uber Eats delivery. This is a fundamental business model change with execution risk.
3. Tariff Exposure
The filing warns about "cost pressures and inflation" including tariff risk on imported merchandise. Dollar Tree sources heavily from Asia; tariffs could squeeze margins on products where pricing flexibility is limited.
4. Self-Insurance Reserves — KPMG's Critical Audit Matter
KPMG flagged the estimated self-insurance liability of $327.2M as the critical audit matter. "The estimation process involves auditor judgment and actuarial expertise to evaluate the actuarial methods and assumptions that are used to estimate future claim payments." With 16,000+ stores, the estimation uncertainty is material.
Summary
Grade: F, but this is a company in the midst of a strategic reset.
Dollar Tree's F grade reflects transition-year mechanics (revenue/CFFO divergence from Family Dollar disposal) and the lease-heavy capital structure common to all large-format discount retailers. The continuing Dollar Tree business is healthy: 36.4% gross margins, CFFO/NI of 1.98, FCF of $1.4B, and minimal goodwill ($423M, 11% of equity). The company has emerged from the Family Dollar catastrophe — $5.7B+ in cumulative losses and impairments — as a leaner, more focused retailer. The key risks going forward are execution of the multi-price strategy, tariff exposure, and the structural challenge of operating 16,000+ stores in a high-labor-cost environment.
**Disclaimer**: This report is based on Dollar Tree's FY2026 10-K filed with SEC EDGAR on March 16, 2026. This is NOT investment advice.
Data: SEC EDGAR 10-K + Yahoo Finance
Auditor: KPMG LLP (Unqualified opinion, 1 critical audit matter — self-insurance liability)
Fiscal year ended: January 31, 2026