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Russian (RU) Jeremy Bowman, The Motley Fool
Thu, Jun 5, 2025, 6:20 AM 4 min read
In This Article:
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Dollar General stock jumped 16% on June 3 after the company beat first-quarter estimates and raised its guidance.
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The company's Back to Basics turnaround plan appears to be working.
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The retailer is seeing some higher-income customers trade down to the brand.
Dollar General (NYSE: DG) has a long history of outperforming in tough economic times. In 2008 and 2009, the discount retailer reported growth in same-store sales (comps) of about 9% each year, even while the rest of the retail sector and the broad economy was reeling from the financial crisis.
Heading into 2025, the stock was struggling after a multiyear period of market share losses to competitors like Walmart, as well as falling profits. However, the combination of its effective "Back to Basics" turnaround strategy and the economic turmoil from the trade war has helped Dollar General get back to top and bottom-line growth.
The stock has surged 50% in just a few months, including a 16% one-day gain following its fiscal first-quarter earnings report in early June. Let's take a closer look.
In its first quarter (ended May 2), the company reported 2.4% comps growth and overall revenue growth of 5.3% to $10.4 billion, above the $10.3 billion analyst consensus.
After several quarters of declining profits, the company's gross margin increased 78 basis points to 31.0% due to lower shrink and higher inventory markups. Selling, general, and administrative expenses rose 77 basis points to 25.4% due to higher labor costs, incentive compensation, and repairs and maintenance.
On the bottom line, earnings per share (EPS) increased 8% to $1.78, well above expectations of $1.49. The company also lowered its inventory by 7% at the end of the quarter to $6.6 billion, showing that it's doing a better job of managing that line item, which generally helps avoid markdowns.
While management said that uncertainty remains in the market due to the potential impact of tariffs on its business and on consumer behavior, it raised its full-year guidance based on its outperformance in the first quarter.
For the full fiscal year, the company expects comps growth of 1.5% to 2.5%, up from a previous forecast of 1.2% to 2.2%. It also raised its EPS forecast from a range of $5.10 to $5.80 to a range of $5.20 to $5.80.
In particular, management expressed optimism about initiatives it has taken to reduce shrink (primarily theft), due in part to lower employee turnover, which the company expects to be a tailwind over the remainder of the year.
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