Dollar General is shaking off tariff fears and winning over higher-income consumers

NBC News

2 days ago

Shares of Dollar General jumped nearly 16% on Tuesday after the discounter raised its outlook, saying it drew more middle- and higher-income shoppers amid fears that higher tariffs would hurt consumer spending.
The Tennessee-based retailer beat quarterly expectations for revenue and earnings. The company said it now anticipates net sales will grow about 3.7% to 4.7%, compared to its previous expectation of about 3.4% to 4.4%. It expects diluted earnings per share to range from $5.20 to $5.80, compared to its prior outlook of approximately $5.10 to $5.80. Dollar General anticipates same-store sales will increase 1.5% to 2.5%, higher than its previous guidance of about 1.2% to 2.2%.
Here's how the retailer did for the fiscal first quarter compared with Wall Street's estimates, according to a survey of analysts by LSEG:
Earnings per share: $1.78 vs. $1.48 expected
Revenue: $10.44 billion vs. $10.31 expected
In the three-month period that ended May 2, Dollar General reported net income of $391.93 million, or $1.78 per share, compared with $363.32 million, or $1.65, in the year-ago quarter.
As of Tuesday's close, shares of Dollar General have risen about 48% so far this year. That far exceeds the roughly 1% gains of the S&P 500 during the same period. Shares of the retailer closed at $112.57 on Tuesday, bringing Dollar General's market value to $24.76 billion.
Dollar General's first-quarter results — and its stock performance — stand out in a retail industry that is already taking a hit from President Donald Trump's tariffs. Companies including Best Buy, Macy's and Abercrombie & Fitch have cut their profit outlooks due to tariffs.
On an earnings call Tuesday, Dollar General CEO Todd Vasos said the company has worked to reduce its exposure to China — and limit price hikes for shoppers. He said the retailer has worked with vendors to cut costs, moved manufacturing to other countries and made changes to its products or swapped them out for other merchandise.
He said direct imports make up about a mid- to high single-digit percentage of its overall purchases and indirect imports are about double that.
'While the tariff landscape remains dynamic and uncertain, we expect tariffs to result in some price increases as a last resort, though, we intend to work to minimize them as much as possible,' he said.
CFO Kelly Dilts said on the company's earnings call that full-year guidance assumes that Dollar General will be able to offset 'a significant portion of the anticipated tariff impact on our gross margin, but also allows for some incremental pressure on consumer spending.'
Customer traffic dipped by 0.3% in the first quarter compared to the year-ago period, but shoppers spent more when they visited. The average transaction amount rose 2.7%, as sales in the food, seasonal, home and apparel categories all grew.
Vasos added tariffs have also increased U.S. consumers' desire to find deep discounts. Vasos said the company's first-quarter results reflect Dollar General's gains from 'customers across multiple income bands seeking value.'
He said store traffic and the company's market research indicates that more middle- and higher-income customers have come to its stores more frequently and spent more when they visited.
'We are pleased to see this growth with a wide range of customers and are excited about our ongoing opportunity to grow [market] share with them,' he said.
Those gains have helped as Dollar General's core customer 'remains financially constrained,' Vasos said. According to a survey by the company, he said 25% of customers reported having less income than they did a year ago and almost 60% of core customers said 'they felt the need to sacrifice on necessities in the coming year.'
Dollar General's sales largely come from U.S. consumers who are on a tight budget. About 60% of the retailer's sales come from households with an annual income of less than $30,000 per year, Vasos said last fall at a Goldman Sachs' retail conference.
In addition to wooing value-conscious shoppers, Dollar General has tried to tackle company-specific problems that drew government scrutiny and tested customer loyalty. The discounter, which has more than 20,000 stores across the country, has paid steep fines to the Labor Department for workplace safety violations due to blocked fire exits and dangerous levels of clutter.
Vasos highlighted some of the ways that Dollar General has tried to improve the customer experience. Among them, it's worked to reduce employee turnover, and it took about 1,000 individual items off its shelves so it can keep top-selling items in stock, he said.
Dollar General has launched its own home delivery service, which is now available at more than 3,000 stores. Its deliveries through DoorDash have grown, too, with sales up more than 50% year over year in the quarter.
Dollar General has also bulked up its merchandise categories outside of the food and snack aisles, adding more discretionary items like seasonal decor and home items.
Vasos said sales in those categories have also gotten a boost from middle- and higher-income customers shopping its stores.
Its newer store chain, Popshelf, sells mostly discretionary items and caters to consumers with higher household incomes than Dollar General's typical shoppers. Vasos did not share a specific metric for the chain, but said Popshelf's same-store sales delivered strong growth in the quarter. The company recently changed the store layout to emphasize toys, beauty and party candy.