DG Q1 Earnings Call: Revenue Misses Expectations as Management Focuses on Store Remodels and Margin Initiatives

Discount retailer Dollar General (NYSE:DG) missed Wall Street’s revenue expectations in Q1 CY2025, but sales rose 5.3% year on year to $10.44 billion. Its GAAP profit of $1.78 per share increased from $1.65 in the same quarter last year.

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StockStory’s Take

Dollar General’s first-quarter results reflected a combination of steady same-store sales growth, improved inventory management, and cost control efforts. Management emphasized the role of store remodels, supply chain execution, and a disciplined approach to SKU (stock-keeping unit) rationalization in supporting operational performance. CEO Todd Vasos highlighted that “SKU reduction has been a big win,” allowing for more space on shelves for high-turnover items, while also noting a notable decrease in employee turnover and improvements in customer satisfaction scores. The company attributed broad-based growth across consumable and non-consumable categories to ongoing investments in store standards and focus on value, even as customer traffic remained slightly negative year over year.

Looking ahead, Dollar General’s updated guidance accounts for ongoing uncertainty related to tariffs, labor costs, and consumer spending. Management cautioned that while shrink (inventory loss) mitigation and store upgrades should continue to benefit margins, rising incentive compensation and potential tariff changes could pressure profitability. CFO Kelly Dilts explained, “Our updated guidance assumes current tariff rates remain in place through mid-August, but also allows for some incremental pressure on consumer spending.” The company expects incentive compensation to weigh on expenses, particularly in the second quarter, while ongoing real estate projects are designed to maximize operating weeks and drive longer-term sales growth. Management stressed the importance of retaining recently acquired higher-income customers and sustaining investments in both pricing and store experience.

Key Insights from Management’s Remarks

Management cited improved execution, investments in store remodels, and success attracting new customer segments as key factors shaping first-quarter results, while noting external headwinds like tariffs and labor remain top of mind.

• Store remodel initiatives: The Project Renovate and Project Elevate programs were credited with driving higher comps in mature locations, with management expecting these efforts to lift first-year sales and profitability for a significant portion of the store base.
• Shrink and inventory control: Dollar General reported progress in reducing inventory shrink and damages. CFO Kelly Dilts noted that “shrink improvement should be the gift that just keeps on giving here” in terms of gross margin improvement, and she further emphasized that operational changes, including process standardization and lower inventory levels, were key contributors.
• Customer trade-in activity: The company observed a meaningful uptick in middle- and higher-income shoppers seeking value, with CEO Todd Vasos noting, “We saw the highest percent of trade-in customers we’ve had in the last four years.” These customers tend to make more frequent trips and spend more per visit.
• Digital and delivery expansion: Dollar General expanded its DoorDash partnership and same-day delivery offerings to over 3,000 stores, with digital sales through these channels increasing more than 50% year over year. The DG Media Network also grew retail media volume by over 25%.
• Non-consumable category strength: Growth in seasonal and home goods was attributed to merchandising changes and brand partnerships, with the pOpshelf format outperforming expectations and being used as a testbed for non-consumable strategies across the company.

Drivers of Future Performance

Dollar General’s outlook is shaped by uncertainty in tariffs, labor costs, and the ability to retain diverse customer segments while executing on major store upgrade initiatives.

• Tariff and cost headwinds: Management highlighted the dynamic tariff environment and potential for cost increases if tariff rates on imports from China revert to previous levels. Mitigation efforts include supplier negotiations and product reengineering, but some price increases could be necessary if tariffs persist.
• Incentive compensation and labor: The company expects higher incentive compensation to be a notable expense headwind in the second quarter, with annual wage rate increases projected at 3.5% to 4%. Management also cited ongoing investments in store labor and the need to manage repairs, maintenance, and utilities expenses.
• Retention of new customer segments: Sustaining engagement from recently acquired middle- and higher-income shoppers is a stated priority, with management developing targeted marketing and merchandising efforts to encourage repeat visits and broaden market share beyond its core base.

Catalysts in Upcoming Quarters

Looking ahead, key areas to monitor will include (1) the execution and measurable impact of Project Renovate and Project Elevate on mature store traffic and profitability, (2) any signs of margin resilience in the face of higher labor costs and potential tariff escalation, and (3) the retention rate and spending behavior of new customer segments, particularly those trading down from higher-income brackets. Progress on digital delivery and performance of non-consumable categories will also be important indicators to watch.

Dollar General currently trades at a forward P/E ratio of 19.4×. In the wake of earnings, is it a buy or sell? The answer lies in our full research report (it’s free).

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