Dollar General Reports Better-Than-Feared Results, Attracting Value Investor Interest

Dollar General (DG) reported its fourth-quarter earnings, showing resilience despite ongoing tariff concerns and margin pressures. Investors feared the company’s lower-margin business model would struggle with cost increases, but its optimization strategy and well-managed inventories helped offset some of these headwinds. While earnings per share (EPS) fell short of expectations, revenue exceeded forecasts, and the company’s long-term restructuring efforts indicate a focus on efficiency and cost control.

Earnings Performance

Dollar General posted Q4 EPS of $0.87, significantly below the consensus estimate of $1.50 and down from $1.83 a year ago. The company’s net sales came in at $10.3 billion, up 4.5% year-over-year and slightly above the expected $10.25 billion. Gross margins remained relatively stable at 29.4%, just a slight dip from 29.5% last year but ahead of the estimated 29.2%. Same-store sales increased by 1.2%, driven by a 2.3% rise in average transaction size, though customer traffic declined by 1.1%.

Operating profit took a sharp hit, declining 49% to $294.2 million, far below the estimated $497.4 million. This was largely due to impairment charges of $232 million related to store closures and restructuring, which negatively impacted EPS by approximately $0.81 per share.

Guidance and Forward Plans

For fiscal 2025, Dollar General projects net sales growth between 3.4% and 4.4%, with same-store sales growth ranging from 1.2% to 2.2%. EPS guidance for the full year is set between $5.10 and $5.80, reflecting cautious optimism in light of ongoing economic uncertainties. The company plans capital expenditures of approximately $1.3 billion to $1.4 billion, focusing on store optimization, technology investments, and operational efficiencies.

Long-term, Dollar General aims to achieve net sales growth of 3.5% to 4% annually and same-store sales growth of 2% to 3% starting in 2025-2026. The company is targeting an operating margin of 6% to 7% by 2028-2029 and diluted EPS growth of 10% or more beginning in 2026.

Store Optimization and Restructuring

As part of its store portfolio review, Dollar General plans to close 96 of its core stores and 45 pOpshelf locations in the first quarter of fiscal 2025. Additionally, six pOpshelf stores will be converted into traditional Dollar General locations. While these closures represent less than 1% of the company’s overall store base, management believes the strategic repositioning will enhance efficiency and profitability.

Beyond closures, the company remains committed to real estate expansion, with plans for approximately 4,885 real estate projects in fiscal 2025. This includes opening 575 new U.S. stores, up to 15 new stores in Mexico, and fully remodeling 2,000 existing locations. Additionally, around 2,250 stores will undergo upgrades as part of Project Elevate, a strategic initiative aimed at improving store layouts and customer experience.

Stock Market Reaction and Outlook

Initially, Dollar General’s stock dipped to $71 following the earnings release but recovered early losses, reflecting mixed investor sentiment. The 50-day simple moving average (SMA) at $73 serves as a key support level, while the 20-day SMA at $76 remains another critical marker. With shares down approximately 52% over the past year and the stock trading at just 12x forward earnings, value investors may find an attractive entry point—particularly if the company successfully maintains margins through its optimization efforts.

Shareholder Returns and Dividends

Dollar General did not engage in share repurchases during fiscal 2024, as planned, opting instead to prioritize operational improvements. However, the company remains committed to returning capital to shareholders and declared a quarterly cash dividend of $0.59 per share, payable on April 22, 2025.

Conclusion

Despite a tough quarter marked by restructuring costs and lower earnings, Dollar General demonstrated resilience through its inventory management and cost-control measures. While near-term challenges persist, the company’s long-term financial framework and store optimization strategy indicate a commitment to sustainable growth. Investors will continue to monitor its ability to navigate tariff-related cost pressures and execute its restructuring plan effectively, as these factors will be key to driving future stock performance.