MW Dollar General is only 'scratching the surface' following earnings, analyst says. How DoorDash and Dolly Parton are helping.

By Bill Peters

The discount retailer's Q1 results 'shifted the narrative,' UBS analyst says

Dollar General Corp.'s first-quarter results yesterday got a boost from middle- and high-income shoppers looking to save money. But to UBS analysts, the results represented more than that.

"This was one of those prints that shifted the narrative," UBS analyst Michael Lasser said in a research note. "The conversation went from whether Dollar General can stage a recovery to, is Dollar General underearning its longer-run potential?"

Following sales and profit growth, along with an upbeat but still potentially conservative outlook, the company was "only scratching the surface of what it could attain," he said.

Still, shares of Dollar General $(DG)$ were down 1.2% on Wednesday, after posting gains on Tuesday.

Lasser said that the chain is investing in store remodels - plans that will likely affect 20% of its locations per year - and nudging employee wages higher. The chain is pruning items that aren't selling well after getting rid of 1,000 last year, he noted, and seeing a stronger showing from online sales and the revenue it brings in from online advertisers.

UBS also highlighted Dollar General's seasonal and home sections - in particular, its collaboration with Dolly Parton on a line of housewares. First-quarter sales of Dollar General's items on DoorDash Inc. $(DASH)$ - via a grocery-delivery partnership with the app - jumped more than 50%. Dollar General plans to explore other partnerships, as well as other ways to increase sales through DoorDash, such as making that service available to more stores.

However, steeper tariffs could mean higher prices for Dollar General's consumers. Chief Executive Todd Vasos, during the chain's earnings call on Tuesday, said the company would try to be considerate when weighing whether to charge customers more.

"While the tariff landscape remains dynamic and uncertain, we expect tariffs to result in some price increases as a last resort, though we intend to work to minimize them as much as possible," he said.

Those remarks echo others made by retailers in recent weeks. Vasos said Dollar General's direct imports generally represented a "mid- to high-single-digit" percentage of its overall purchases. He added that China - the U.S.'s main target in its global trade war - accounted for less than 70% of the company's direct imports, down from earlier levels, and estimated that less than 40% of Dollar General's indirect imports came from China.

Still, Dollar General's lower-income shoppers continue to struggle more with higher costs of living. The company also faces steeper competition from Walmart Inc. $(WMT)$ and Amazon.com Inc. $(AMZN)$ - the latter of which, UBS noted, is investing more in rural areas. The chain, like other retailers, has also faced pressure to strengthen its diversity commitments, and it has dealt with store-safety issues.

Financially, at least, Dollar General on Tuesday said it expects same-store sales growth of 1.5% to 2.5% for its current fiscal year, which ends on Jan. 30. But UBS's Lasser said he believes that forecast could be conservative.

He noted that during the first quarter, Dollar General posted same-store sales gains of 2.4%, despite tougher comparisons from last year. He also cited solid trends for the company's second quarter.

"I would anticipate with all the work that we've done, and depending on where the consumer falls, that we'll continue to see comp momentum and, hopefully, traffic momentum as we move through the quarter and into the back half of the year," Vasos said on Dollar General's earnings call.

Dollar General's stock has gained nearly 47% this year to date, but is down more than 17% over the past 12 months.

-Bill Peters

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June 04, 2025 14:45 ET (18:45 GMT)

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