Dollar General’s Strategic Pivot Fuels Relative Strength Gains Amid Retail Headwinds

The retail sector has faced relentless headwinds in recent years—elevated inflation, supply chain disruptions, and shifting consumer preferences. Yet Dollar General (DG) has managed to carve out a path to resilience, culminating in an Investor’s Business Daily (IBD) Relative Strength Rating jump from 64 to 74 in early 2025. This rating, which measures a stock’s performance against 99 others over 52 weeks, signals a growing investor conviction in the discount retailer’s ability to navigate macroeconomic challenges while executing its long-term strategy.

But what lies behind this rating upgrade, and does it reflect sustainable momentum or a fleeting market reaction? Let’s dissect the data.

The Catalysts for Dollar General’s Recent Outperformance

Dollar General’s stock surged 28.5% in three months through early 2025, closing at $92.02—a stark contrast to the broader market (S&P 500 fell 14.7%) and peers like Target (-31.7%) and Dollar Tree (+1.2%). Analysts point to two key drivers:

1. Strategic Store Modernization:
2. Dollar General is aggressively remodeling stores to boost customer appeal. In 2025, it plans 4,885 projects, including 575 new U.S. stores and 2,000 full rehabs under “Project Renovate.” These upgrades aim to increase foot traffic and sales in mature locations by 3–5% while reducing long-term maintenance costs.
3. The company is also expanding store sizes to 10,566–10,640 sq. ft., prioritizing fresh produce and non-consumables. This shift aligns with low-income households’ demand for affordable staples, which now account for 18% of sales—a proportion Dollar General aims to increase by 100 basis points by 2027.

4. 

5. Digital Innovation:

6. The retailer’s partnership with DoorDash to pilot same-day delivery in 400 stores—expanding to 10,000 locations by year-end—has proven a game-changer. Average order values for deliveries exceed in-store purchases, and integrating SNAP/EBT payments for online orders has broadened accessibility for its core demographic.

The Bulls’ Case: A Defensive Play in a Volatile Market

Analysts like Melius Research, which upgraded DG to “Strong-Buy” with a $110 price target, argue that Dollar General’s value-driven model is uniquely positioned to thrive in an inflationary environment. Key points include:
- Resilient Customer Base: Low-income households, which make up 70% of its shoppers, are increasingly turning to discount retailers as prices rise.
- Margin Expansion Potential: By 2028, management aims to boost operating margins to 6–7% through cost-saving initiatives, such as SKU rationalization (reducing inventory per store by 6.9%) and store closures (168 in 2024 to focus on high-performing locations).
- Valuation Discounts: At a forward P/E of 16.29, DG trades below the S&P 500 (18.58) and its historical median (13.62), offering a margin of safety.

The Bears’ Concerns: Near-Term Headwinds

Despite the optimism, risks remain:
- Margin Pressures: Q1 2025 EPS is projected to drop 11.3% year-over-year, with Q2 declining a further 7.6% due to rising labor costs (+3.5–4%), tariffs on imports, and deferred remodeling expenses.
- Consumer Traffic Declines: Q4 2024 saw a 1.1% traffic drop, reflecting ongoing economic strain. Management acknowledges that “financial stress for our customers is persistent.”
- Valuation Ceiling: Wells Fargo’s $80 price target (a 12% downside from recent levels) highlights concerns about overvaluation in the near term.
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The Bottom Line: A Stock for the Long Game

Dollar General’s recent Relative Strength Rating boost reflects progress in its “back-to-basics” strategy—modernizing stores, expanding digitally, and optimizing costs. However, investors must weigh this against near-term execution risks and macroeconomic uncertainty.

The stock’s $89.35 average price target (with bulls eyeing $110) suggests analysts see long-term value, particularly as operating margins recover and same-store sales stabilize. Yet, with EPS expected to contract in 2025 and labor costs rising, the path to profitability will require disciplined execution.

Final Verdict: Dollar General’s stock is a compelling bet for investors willing to look beyond 2025. Its defensive positioning, strategic initiatives, and undemanding valuation make it a contender for outperformance over the next three to five years—if management can deliver on its margin and sales targets.

In conclusion, Dollar General’s Relative Strength Rating lift is more than a technical indicator—it’s a vote of confidence in its ability to adapt to a challenging retail landscape. But as the old Wall Street adage goes: “Don’t let past performance dictate future results.” For DG, the next chapter hinges on turning its strategic vision into sustained profit growth.