On Tuesday, Dollar General experienced a remarkable surge in its stock price, jumping more than 10% following the company's announcement to raise its financial outlook. The Tennessee-based discount retailer reported that it has successfully attracted more middle- and higher-income shoppers, which is particularly significant given the prevailing concerns about increased tariffs impacting consumer spending.
During the latest fiscal quarter, Dollar General surpassed Wall Street's expectations for both revenue and earnings. The company now projects that its net sales will grow between 3.7% and 4.7%, a notable increase from its previous forecast of 3.4% to 4.4%. Additionally, Dollar General anticipates that its diluted earnings per share (EPS) will range from $5.20 to $5.80, slightly above its earlier guidance of approximately $5.10 to $5.80.
Furthermore, the retailer expects same-store sales to rise between 1.5% and 2.5%, improving from the prior range of 1.2% to 2.2%. In the three-month period ending May 2, Dollar General reported a net income of $391.93 million, translating to $1.78 per share, compared to $363.32 million, or $1.65 per share, in the same quarter last year.
Dollar General's impressive results stand out in a retail landscape grappling with challenges posed by President Donald Trump's tariffs. Major retailers such as Best Buy, Macy's, and Abercrombie & Fitch have adjusted their profit outlooks downwards as a direct consequence of these tariffs. On the earnings call, CEO Todd Vasos emphasized that Dollar General has made significant strides to minimize its exposure to China while working diligently to avoid passing price increases onto consumers.
Vasos highlighted that the retailer has collaborated with vendors to reduce costs, relocated manufacturing to alternative countries, and modified product assortments to mitigate the impact of tariffs. He pointed out that direct imports account for a mid- to high single-digit percentage of Dollar General's overall purchases, while indirect imports are approximately double that figure. Despite the dynamic and uncertain tariff landscape, the company aims to minimize price hikes as much as possible.
CFO Kelly Dilts further noted that the company's full-year guidance assumes Dollar General will offset a significant portion of the anticipated tariff impact on its gross margins, while also acknowledging potential pressures on consumer spending.
In the first quarter, customer traffic dipped by 0.3% compared to the previous year; however, those who visited spent more per transaction. The average transaction amount increased by 2.7%, with notable sales growth in food, seasonal items, home goods, and apparel. Vasos mentioned that the desire for deep discounts among U.S. consumers has intensified due to tariffs, contributing to the retailer's success in attracting customers from various income brackets.
Dollar General's first-quarter results reflect its expanding customer base, which now includes a significant number of middle- and higher-income shoppers. Vasos expressed satisfaction with this growth, emphasizing the company's potential to further increase market share among these demographics. Despite these gains, he acknowledged that a substantial portion of Dollar General's core customers remains financially constrained, with 25% reporting a decrease in income compared to last year and nearly 60% indicating they may need to sacrifice on essentials in the coming year.
As a discount retailer with over 20,000 locations nationwide, Dollar General has also been addressing operational challenges that have drawn scrutiny from the government and tested customer loyalty. The company has faced hefty fines from the Labor Department due to workplace safety violations, including blocked fire exits and hazardous clutter levels. In response, Vasos highlighted initiatives aimed at improving the customer experience, such as reducing employee turnover and streamlining inventory by removing around 1,000 less popular items to ensure top-selling products remain in stock.
Dollar General has also launched its own home delivery service, which now operates in over 3,000 stores. Additionally, its partnership with DoorDash has seen sales increase by more than 50% year-over-year in the recent quarter. The retailer has expanded its merchandise categories beyond food and snacks, introducing more discretionary items like seasonal decor and home goods, which have resonated well with middle- and higher-income shoppers.
In conclusion, Dollar General's positive outlook and strategic adaptations amid tariff challenges position it well for future growth, making it a notable player in the retail sector.
