Dollar General Corp. (NYSE: DG) stock is holding on to gains of about 6% after the discount retailer reported earnings on March 13, 2025. The company scored a slight beat on revenue, with its $10.30 billion in revenue nudging above the $10.26 billion projected by analysts.
That revenue number reflected a 1.4% year-over-year (YOY) increase in same-store sales, which was attributed to a 1.1% increase in customer traffic and a 0.3% increase in average transaction amount. However, the positive revenue numbers were tempered by a 42% miss on the bottom line. The company’s 95 cents of earnings per share (EPS) were far below the $1.51 EPS forecast by analysts.
Analyst sentiment is neutral, with little to change the expectations for share price growth of around 15% in the next 12 months. Investors may have an opportunity for growth, but they’ll have to trust that Dollar General can overcome several obstacles.
Consumers Focus on Essentials as Inflation Pressures Persist
Digging into the sales numbers, management was quick to note that most of the sales were in what would be considered staple items. Consumers continue to feel the pinch of inflation and comment that they are only shopping for the essentials.
This scenario isn’t limited to dollar store chains. Walmart Inc. (NYSE: WMT) has been providing similar commentary on the consumer for several quarters. However, unlike the discount retail chains, Walmart has benefited from an influx of more affluent consumers who are picking up the slack for their target consumers.
However, dollar stores have been the canary in the coal mine for investors who have been inclined to believe that the economy was weaker than expected. Although DG stock is now positive in 2025, investors are still nursing a 46.9% loss over the last 12 months. That compares favorably with Dollar Tree Inc. (NASDAQ: DLTR), which is down 49% in the last 12 months, and Five Below Inc. (NASDAQ: FIVE), which is down 63%.
A Victim of Rising Interest Rates
In the past few years, a key element of Dollar General’s growth strategy was based on building out the company’s footprint. In addition to opening new stores under the Dollar General name, the company expanded the number of stores under the pOpshelf banner. These stores target suburban shoppers with a more elevated experience to include what the company calls “fresh + fun” items, such as home decor.
This expansion made sense when interest rates were near zero. However, the rising interest rate environment since late 2022 is causing Dollar General to reevaluate its store composition. Essentially, the company has to make new stores profitable quickly, and that will come at the expense of underperforming locations. In late 2024, Dollar General began assessing stores for closure or rebranding based primarily on performance factors.
Benefiting From Sector Rotation
So, with two significant headwinds keeping investors away from Dollar General and all retail stocks, why is the stock outperforming the broader market? One reason is sector rotation. Investors are fleeing extremely overvalued tech stocks and are moving to the more reasonable value of stocks like DG, which currently trades at around 13x earnings.
[content-module:MarketRank|NYSE: DG]To put that into perspective, investors are buying DG stock at around a 31% discount to its mean P/E ratio of around 19x in the last 10 years. Dollar General also pays a dividend that currently offers a yield of around 2.94%. That dividend could separate it from competitors like Dollar Tree and Five Below, which may offer more potential appreciation but no dividend.
However, an equally valid reason is that there were low expectations heading into earnings. That means analysts are more willing to overlook a miss on earnings because of the revenue gains. More importantly, although the company didn’t commit to a specific timeline, it is forecasting EPS growth of more than 10% starting in 2026, when the impact of the store closures will be felt in the company’s financials.
The Technicals Support a Higher Price
Since September, DG stock has been trading in a defined range with a high around $87 and a low around $68. However, since the earnings report, DG stock is finding support at its 100-day simple moving average (SMA). Investors will want to see if the stock can push back a level around $81 which has been acting as a level of resistance.
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