When the economy gets weird, people get practical. That's the story behind Dollar General Corp. (DG)'s impressive third-quarter performance, which showed strong earnings and prompted the company to lift its full-year outlook. The discount retailer is winning with budget-conscious shoppers who are looking for value regardless of what their bank account says.
Following the earnings release, Telsey Advisory Group analyst Joseph Feldman kept his Market Perform rating on Dollar General but bumped his price target to $130 from $123. His take? The company is executing well in an uncertain environment and pulling in value-seekers from across the income spectrum. Adjusted EPS hit $1.28, crushing Feldman's 91-cent estimate and the 95-cent consensus from FactSet.
Margins Tell the Real Story
The earnings beat wasn't just about top-line sales. Margin performance drove the upside in a meaningful way. Operating margin expanded 82 basis points to 4.0%, while gross margin jumped 107 basis points to 29.9%. The improvement came from lower shrinkage (contributing roughly 90 basis points) and higher markups, though a higher LIFO provision ate into some of those gains.
SG&A expenses deleveraged by 25 basis points to 25.9% due to incentive compensation, repairs and maintenance, and utilities. Even so, EBIT dollars climbed 31.5% to $426 million, which is the kind of operating leverage investors like to see.
Traffic Is King
Sales grew 4.6% to $10.7 billion, with comparable sales up 2.5%. Here's the interesting part: that comp increase came entirely from a 2.5% jump in traffic. Average ticket stayed essentially flat, as higher unit prices offset fewer items per basket.
Feldman highlighted broad strength across categories, driven by the company's "back-to-basics" initiatives and sharper value propositions. Dollar General now offers more than 2,000 SKUs at or below $1, and its Value Valley section (roughly 500 items at $1) posted a 7.6% comp. Seasonal and home categories also improved with a 4.0% gain. Notably, higher-income shoppers continue trading down to Dollar General, expanding the customer base beyond the traditional core.
Early fourth-quarter trends looked solid despite some timing headwinds from delayed SNAP payments, which represent about 5% of transactions. The brief government shutdown period actually supported demand for essentials, and spending picked up as benefits were distributed later in November.
Raised Guidance and Growth Initiatives
Dollar General significantly raised its 2025 EPS guidance to $6.30–$6.50, up from the prior range of $5.80–$6.30. The company also increased sales growth guidance to 4.7%–4.9% and comparable sales guidance to 2.5%–2.7%.
Feldman noted that the planned paydown of $550 million in 2027 debt should reduce interest expense and add roughly 9 cents to EPS. The company has ambitious expansion plans with 4,885 real estate projects slated for 2025. On the delivery front, Dollar General is scaling partnerships with DoorDash (DASH) across more than 18,000 stores, offering same-day delivery in over 17,000 locations, and working with Uber Eats (UBER) in 17,000 stores.
Feldman called the valuation fair at roughly 19.5 times the midpoint of 2025 guidance. His $130 price target is based on approximately 18 times his 2026 EPS estimate of $7.15, though he flagged potential headwinds from low-income consumer pressure, competition, tariffs, and inflation.
Wall Street Reacts
Other analysts moved their targets higher while mostly maintaining their ratings. Jefferies (Buy) raised its price target to $142 from $130, while UBS (Buy) lifted its target to $143 from $135. Several firms with neutral-equivalent ratings also increased forecasts: Piper Sandler (Neutral) to $129 from $117, Truist (Hold) to $129 from $120, Morgan Stanley (Equal-Weight) to $135 from $125, Evercore ISI (In-Line) to $130 from $105, and BMO (Market Perform) to $130 from $115.
DG Price Action: Dollar General shares were down 0.21% at $132.09 during premarket trading on Monday. The stock is trading near its 52-week high of $135.08.
