Earnings Surprise Incoming? ($DG)

Dollar General ($DG) stock has been crushed, down 52% over the past year and ~70% on a 2-year clip.

Expectations are low. Investors are concerned about weaker sales, deeper markdowns, and slowing store growth, as noted in a recent Deutsche Bank downgrade. On the consumer side, complaints about messy stores, crowded aisles, and poor customer service haven’t helped either.

Last quarter, DG increased net sales by 5% year-over-year, with more traffic and begger purchases. But net income dropped 29% due to markdowns and inventory damage. The stock barely moved.

Is this quarter set up for much of the same?

LikeFolio metrics show signs of life.

Here's what we're watching:

Trade-Down Effect Still Driving Growth

Inflation may be cooling, but lower-income consumers aren’t feeling relief. February’s CPI reading showed inflation at 3.2% YoY, down slightly, but food prices remain high.

Walmart’s CEO said more shoppers are opting for smaller pack sizes at the end of the month—a clear sign of financial strain.

That’s where DG thrives. Web data shows DG outperforming peers as the trade-down effect remains in play.

When Target and Kroger shoppers trade down, they go to Walmart. When Walmart shoppers trade down, they go to Dollar General.

Dollar General Tailwinds in Q4

• Sentiment Is Recovering: DG reversed its self-checkout and ID scanning policy, and consumer sentiment improved. Shoppers are still looking for convenience and value, and DG is winning back their trust.

• Same-Day Delivery Expansion: DG is testing same-day delivery through its app, fulfilled by a third-party partner. It already works with DoorDash in 16,000 locations. If DG can execute, this adds a major convenience factor that puts it in the same conversation as Walmart and Amazon.

• Private Label Strength: More shoppers are switching to private-label products to save money. We saw this with Kroger. DG has expanded its Clover Valley lineup by 100+ items in Q1, bringing the total to 700. Last year, DG’s private-label grocery sales hit $2.3 billion. It also sells house-branded over-the-counter meds, cleaning supplies, and pet food—essentials that drive repeat purchases.

• Fresh Produce Expansion: Adding fresh food to 300 more locations this year, bringing the total to nearly 7,000. More fresh food means more frequent trips and higher basket sizes.

• Store Refresh and Supply Chain Investments: DG is fixing up its stores through "Project Elevate," targeting high-traffic areas for improvements. A new Arkansas distribution center also opened this month, improving logistics.

Bottom Line
The stock is priced for failure, but the data tells a different story. Trade-down spending is still in effect, sentiment is improving, and execution is tightening up. With expectations set low, the conditions look enticing for a move to the upside.