Dollar General Surges on Strong Q1 Beat, Raises Outlook Despite Tariff Jitters

Dollar General (DG) kicked off discount retail earnings season with a stronger-than-expected fiscal Q1 report, offering a cautiously upbeat tone for the low-cost retail space despite lingering concerns about tariffs. Shares surged over 10% in premarket trading after the company handily beat consensus estimates on both revenue and earnings, raised the floor of its full-year EPS guidance, and demonstrated improving operational trends in a challenging retail environment. With Dollar Tree and Five Below reporting tomorrow, DG's results set the bar, particularly around how tariffs may impact margins and consumer behavior.

In its fiscal Q1 (ended May 2, 2025), Dollar General posted net sales of $10.44 billion, up 5.3% year-over-year and well ahead of the $10.29 billion consensus estimate. Same-store sales rose 2.4%, doubling the 1.2% growth analysts had forecast, driven by a 2.7% increase in average ticket size that offset a slight 0.3% decline in traffic. EPS came in at $1.78, beating estimates by nearly 30 cents ($1.49 consensus) and rising 7.9% from a year ago. Operating profit rose 5.5% to $576.1 million, while net income grew to $391.9 million, reflecting improved execution and margin discipline.

Gross margin improved meaningfully to 31.0% versus 30.2% last year, benefiting from lower inventory shrink and higher markups. These positives were partially offset by markdowns. SG&A costs rose to 25.4% of sales (up 77bps), largely due to higher labor, incentive comp, and store maintenance. Even with these pressures, Dollar General delivered robust cash from operations of $847.2 million (+28% YoY) and trimmed interest expenses by nearly 11%, contributing to the bottom-line upside.

The company raised its full-year guidance on multiple fronts, reflecting confidence in execution and resiliency in its value-focused business model. DG now sees FY25 net sales growth of 3.7% to 4.7% (vs. prior 3.4%-4.4%), comp sales of 1.5% to 2.5% (up from 1.2%-2.2%), and EPS of $5.20 to $5.80 (vs. prior floor of $5.10). These upgrades assume current tariff rates hold through mid-August and factor in mitigation plans should previously announced tariff hikes go into effect. Importantly, management acknowledged the risk to consumer behavior from potential price increases but expressed confidence in its ability to manage costs.

Tariffs featured prominently in the outlook. While DG only imports about 4% of its merchandise, its low-margin model makes even modest cost increases material. Management said it has “plans in place” to absorb much of the tariff-driven cost pressure should U.S. rates on Chinese goods revert to pre-April 2 levels. However, it acknowledged that price increases could still squeeze low-income consumers. CEO Todd Vasos called the tariff environment “highly dynamic,” and noted that the company is actively monitoring developments. Still, Vasos struck an optimistic tone, highlighting that Dollar General’s value positioning and broad assortment give it a competitive edge in times of economic uncertainty.

From a strategic standpoint, DG’s real estate footprint continues to expand. In Q1, it opened 156 stores, remodeled 1,227 (via Project Elevate and Project Renovate), and relocated 23. For the full year, it remains on track to execute nearly 4,900 real estate projects, including 575 new U.S. stores and up to 15 in Mexico. Capital expenditures for Q1 totaled $291 million, and FY25 spending is expected to land between $1.3 billion and $1.4 billion.

While Q1’s clean beat offers reassurance after a bumpy 2024—when EPS fell sharply and inventories were bloated—investors remain focused on whether these green shoots can sustain. DG's proactive cost controls, improved shrink management, and better product flow all suggest progress. However, macro risks like rising tariffs and constrained consumer spending still loom large. The company is not assuming any buybacks this year, signaling a preference to invest in operations and fortify its balance sheet.

In summary, Dollar General’s strong Q1 report and upward guidance revision offer a clear sign that its turnaround efforts are gaining traction. Tariffs remain a potential headwind, but management’s early preparation and product mix insulation give it some cushion. The market rewarded the strong print, with shares spiking 10% at the open. Attention now turns to Dollar Tree and Five Below to see if DG’s positive momentum is company-specific or an early signal of stabilization in the discount retail space.