Dollar General Earnings Surge, Spur Outlook Hike and Analyst Upgrades

Dollar General Earnings Report Analysis

Summary

Dollar General Corp. (NYSE: DG) reported stronger-than-expected earnings and revenue for its third quarter, boosting its full-year 2025 outlook amid a backdrop of consumer price sensitivity and economic uncertainty. The company's net sales rose 4.6% year-over-year to $10.65 billion, slightly above estimates of $10.64 billion. Earnings per share (EPS) came in at $1.28, well above the $0.95 expected by analysts.

The company attributed its strong performance to higher same-store sales, improved gross profit margins, and new store growth. Same-store sales increased by 2.5%, driven by higher customer traffic and stable transaction amounts. Dollar General also highlighted the positive impact of inventory markups and reduced shrink on its gross profit margin.

Dollar General raised its full-year 2025 guidance, increasing its net sales growth forecast to 4.7%–4.9% and same-store sales growth to 2.5%–2.7%. The company also raised its diluted EPS outlook to $6.30–$6.50 from its previous range of $5.80–$6.30. The updated guidance reflects the company's outperformance in the third quarter and a more optimistic outlook for the remainder of the year.

What Analysts Are Watching

The revised earnings guidance has drawn positive responses from Wall Street analysts, with several upgrading their price targets. Bernstein upgraded its target from $122 to $134 and reiterated an "outperform" rating. Wolfe Research initiated coverage with a $139 target and "outperform" rating, while Morgan Stanley raised its price objective to $125 and gave the stock an "equal weight" rating. The consensus rating from analysts remains "Hold," with an average price target of $117.82.

Analysts are closely watching Dollar General's ability to sustain its strong performance amid a challenging macroeconomic environment. The company's stock currently trades at 17 times the next 12 months of earnings, in line with its three-month average. However, the recent price rally has raised questions about whether the stock is fully priced for its improved outlook.

Risks to the Outlook

Despite its strong third-quarter results, Dollar General faces several risks that could impact its performance in the coming months. Consumer spending remains sensitive to inflation and potential recessionary pressures, which could dampen demand for the company's value-oriented offerings. The company also faces competition from other discount retailers, including Dollar Tree and Five Below, which are also expanding their presence in the value retail sector.

Additionally, Dollar General's ability to maintain its current pace of store openings and renovations could be constrained by rising costs and supply chain challenges. The company plans to open approximately 4,730 real estate projects in fiscal 2026, including 450 new stores. If it encounters delays or higher-than-expected costs in executing these projects, its long-term growth could be impacted.

What This Means for Investors

Investors appear cautiously optimistic about Dollar General's outlook. The stock opened at $110.13 on Thursday and has traded within a 52-week range of $66.43 to $117.95. The company has also maintained a consistent dividend, declaring a quarterly cash dividend of $0.59 per share.

For long-term investors, Dollar General's focus on operational efficiency and value-driven offerings could position it well in a high-inflation environment. However, short-term traders may need to monitor broader market sentiment and macroeconomic data, such as upcoming labor market and inflation reports, which could influence investor behavior.