Dollar General Earnings: Results Shine on Same-Store Sales Growth

Key Morningstar Metrics for Dollar General

• Fair Value Estimate: $115.00
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Medium

What We Thought of Dollar General’s Earnings

Dollar General’s DG sales rose 5% and its earnings per share rose 8% in the first quarter on same-store sales growth of 2.4%. The retailer now expects 2025 sales growth of 3.7%-4.7% (3.4%-4.4% prior) and EPS of $5.20-$5.80 ($5.10-$5.80).

Why it matters: While the retailer grapples with macro uncertainties and intense competition, a sharper focus on value pricing and in-store experiences has resonated with its core consumers.

• Its improved appeal to shoppers was evidenced by a 2.7% rise in average basket in the quarter, up from a 0.3% rise in fiscal 2024. In addition to strength in core consumables, we see the spending level as benefiting from better merchandising in discretionary items.
• Labor and store investments kept operating margin flat at 5.5%, but that exceeded our 4.6% forecast. Plans to accelerate store remodels may pressure near-term margins, but they bode well for growth over the longer term.

The bottom line: We plan to raise our $115 fair value estimate for narrow-moat Dollar General by a low-single-digit percentage following the solid quarterly report. This would leave the shares slightly undervalued after rallying about 50% year to date (including a 16% post-earnings rise on June 3).

• We view the updated 2025 outlook as reasonable and plan to tick up our estimates (3.2% sales growth and $5.39 in EPS) accordingly. We expect to lift our comparable sales growth expectations, but our estimate for 476 new stores (a 2.3% rise) this year is unchanged.
• Over the next five years, we expect better merchandising and higher store productivity to fuel same-store sales growth of 2%-3%. Operating margin will likely take time to rebound as the firm improves sales mix and inventory control, reaching 6% in 2029.

Between the lines: The retailer is prudent to remain vigilant on tariffs, as an estimated 20% of sales comes from imports. Measures in place to mitigate the impact include vendor negotiations, alternative sourcing, and product redesign.