Dollar General: Navigating Tariffs and Turnarounds to Lead the Discount Retail Surge

Dollar General (DG) has emerged as a standout player in the discount retail sector, leveraging a dual strategy of operational discipline and strategic repositioning to capitalize on macroeconomic tailwinds. Amid rising inflation, trade barriers, and shifting consumer preferences, the company’s recent store portfolio restructuring and low tariff exposure are positioning it to outperform peers like Walmart and Dollar Tree. Here’s why DG is a compelling buy for investors seeking resilience and growth in uncertain times.

The Store Portfolio Restructuring: Pruning for Profitability

In Q4 2024, Dollar General announced a bold move to close 96 underperforming stores and 45 pOpshelf locations while converting six pOpshelf units to full-service Dollar General stores. While this triggered a one-time $232 million charge, the decision reflects a sharp focus on operational efficiency. By shedding underperforming assets, DG aims to improve margins and customer experience in high-potential markets. The company’s capital allocation priorities—allocating $1.3 billion in 2024 to 575 new U.S. stores, tech upgrades, and store remodellings—signal a commitment to long-term growth.

The restructuring is already bearing fruit. Same-store sales rose 1.2% in Q4, driven by a 2.3% increase in average transaction size—a sign that DG’s pricing power is intact even as traffic dipped slightly. CEO Todd Vasos’ “Back to Basics” strategy has also reduced out-of-stock situations, a critical factor in retaining price-sensitive customers.

Tariff Resilience: The Consumables Advantage

DG’s 4–10% import dependency and 82% sales from consumables (food, health, and household essentials) create a natural shield against tariff-driven inflation. Unlike competitors like Walmart, which face higher exposure to imported discretionary goods, DG’s focus on domestically produced staples ensures stability. Analysts note only 10% of DG’s inventory is tariff-exposed, compared to 50–100% for peers—a structural advantage as trade tensions escalate.

This positioning has amplified during President Trump’s first 100 days, where DG’s stock surged +36%—far outpacing the S&P 500’s decline.

A Tailwind from Walmart’s Struggles

Walmart’s decision to pass tariff costs to consumers has inadvertently fueled DG’s appeal. As Walmart hikes prices, Dollar General’s small-package, low-cost items (e.g., single rolls of toilet paper) attract trade-down shoppers. This dynamic is reflected in DG’s 20% SNAP-dependent sales, which are sticky during economic slowdowns.

Analysts at Citi and KeyBanc highlight DG’s defensive positioning: Citi upgraded DG to Neutral from Sell in early 2025, citing its insulation from discretionary spending declines and raising its price target to $101. Meanwhile, DG’s 2025 guidance—a diluted EPS range of $5.10–$5.80—aligns with its 5-year target of 10%+ annual EPS growth starting in 2026.

Risks and the Path Forward

DG is not without challenges. E-commerce threats from Walmart+ and Amazon loom, though rural store locations and a focus on in-person essentials mitigate this risk. Additionally, SNAP benefit cuts or trade policy shifts could disrupt its core customer base. However, DG’s disciplined capital allocation—3% of net sales in capex and a $0.59 quarterly dividend—reinforces its ability to weather headwinds.

Why Buy Now?

• Margin Expansion: DG’s 2028–2029 target of 6–7% operating margins is achievable post-restructuring, with 2024’s one-time charges now behind it.
• Value Retail Momentum: Consumer shifts to discounters are structural, not cyclical. DG’s 575 new stores in 2025 will further capitalize on this trend.
• Valuation: At $93.69, DG trades at a 24% discount to its 2022 high, offering upside to $120–$130 if targets are met.

Conclusion: DG’s Turnaround is No Small Deal

Dollar General’s strategic moves—pruning underperforming stores, prioritizing consumables, and capitalizing on Walmart’s missteps—paint a clear picture: this is a retailer primed to thrive in inflationary, protectionist environments. With a fortress balance sheet, a proven playbook for operational turnaround, and tailwinds from consumer behavior, DG is not just surviving—it’s positioning itself to lead the discount retail sector for years to come.

Act now to secure a stake in this resilient, growth-oriented value play.