The Tennessee-based retailer Dollar General (DG) saw its stock jump meaningfully after its recent Q3 earnings call, with shares rebounding as investors reacted to a traffic-led same-store sales beat and an upward revision to the full-year outlook. The 2.5% comp increase—driven entirely by higher customer visits and supported by solid gross-margin improvement—marked a sharp contrast to the macro-driven weakness among low-income consumers that had weighed on the business from 2023 through early 2025.
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Even so, DG’s rapid re-rating back toward 2023 valuation levels raises reasonable questions about how much of the recovery is already priced in. At current levels, the risk-reward skews less favorably, especially given that a meaningful portion of the company’s progress still depends on external factors beyond its control. For that reason, I think the stock is better approached with patience rather than enthusiasm at this stage. Dollar General remains a Hold.
When the Low-Income Service Economy Stopped Deteriorating
Dollar General’s rebound in 2025 is best understood through the lens of a labor market that split in two from 2023 to early 2025.
During that period—when DG’s share price plunged by more than 70%—the company’s income, which depended on those shares, was hit by one of the sharpest employment contractions in the country. Workers in retail trade, transportation and warehousing, manufacturing, and service-sector hourly jobs were disproportionately affected. So far this year, transportation and warehousing employment dropped by more than 5%, retail trade fell by 3%, and manufacturing slipped by roughly 0.5%.
These categories map directly onto DG’s core shopper, and the prolonged downturn helps explain the weaker traffic, the smaller baskets, and especially the margin pressure that shaped the company’s 2024 results. Gross margins, which were near 31% in early 2023, sank to about 27.2% at the lows in March.
The macro backdrop only started to show a meaningful improvement in mid-2025, when signs of a potential re-acceleration began to appear. Leisure and hospitality is a good example since the sector moved from negative territory to 3.1% year over year, marking the first broad-based improvement for lower-income workers in nearly two years. DG’s store traffic has always been highly sensitive to this type of inflection. When hours worked and wages stop deteriorating for its core consumer, visits start rising even before discretionary categories fully recover.
The latest numbers from Q3 2025 reflect this shift. Same-store sales grew 2.5% for the year, driven entirely by traffic, and management raised full-year expectations to a range of 2.5 to 2.7%, compared with the previous range of 2.1 to 2.6%.
Why Dollar General’s Margins Are Recovering
When it comes to margins, I think part of the stock’s rebound this year—especially after Q3—is tied to the broader labor and inflation cycle. As lower-income employment stabilizes, Dollar General naturally sees renewed growth in higher-margin non-consumables. This is something the company simply could not tap into during the downturn, when financially strained consumers shifted almost entirely into low-margin consumables.
The Q3 numbers illustrate this shift well. DG expanded gross margins by 107 bps year over year, driven primarily by a 90 bps reduction in shrink and better initial markups. This aligns with the historical pattern in which non-consumables begin to recover once low-end wage-and-hour trends stop deteriorating. In other words, the macro backdrop finally stopped working against DG and started working with it.
Even so, the story is not purely macro. Dollar General also executed better operationally. Merchandise inventory dropped 6.5% year over year, reflecting tighter inventory management and SKU rationalization. These adjustments helped improve the mix and reduce damage and markdown risk.
Operating margin remains at 4%—well below the 9-10% range the company achieved before 2023—but recent progress has been steady, despite SG&A rising 25 bps as a percentage of revenue. Virtually all of the improvement in operating margin came from gross margin, which underscores an important point. The turnaround underway is supported by a stronger macroeconomic backdrop, but it is being built primarily through improved execution within the four walls.
Valuation Already Assumes Victory
As Dollar General trades around 22.8x earnings, the valuation looks very similar to where it stood in 2023, back when the company was delivering operating margins above 9%, steady growth, and a classic defensive-compounder profile.
In early 2025, at the worst point of the cycle, DG briefly traded near 10x earnings as margins collapsed, non-consumables dried up, shrinkage surged, inventories ballooned, and analysts were cutting estimates across the board. That backdrop had nothing in common with a defensive-compounding story.
Today, DG’s multiple already reflects a meaningful portion of the operational turnaround driven by margin stabilization and a healthier low-income consumer. The catch is that this recovery is still far from complete. The stock seems to have re-rated to roughly 23x earnings a bit too quickly, as if the market were already assuming a smooth return to a 7–8% operating margin.
That outcome is possible, but it will take time and require near-flawless execution. It also depends on several external factors working against DG, including a still-fragile low-income consumer base, the risk of shrink flaring up again, and rising competitive pressure from Walmart (WMT) and Amazon (AMZN), as both push deeper into convenience and expand delivery reach in rural markets. These dynamics warrant careful monitoring.
Is DG Stock a Buy?
There is not much enthusiasm surrounding Dollar General at the moment. Among the 16 Wall Street analyst ratings issued over the past three months, seven are Buys and nine are Holds. The average price target sits at $132.07, which implies a modest 0.2% downside from the most recent share price.
Dollar General’s Turnaround Gets Ahead of Its Own Story
Recent results suggest that Dollar General is back on the right track, but the share price has already moved well ahead of the company’s execution. The recovery built on a stabilizing low-income consumer, the gradual return of higher-margin categories, and the sharp improvement in shrinkage are all legitimate drivers of operational progress. The problem is that, at pre-2024 earnings multiples, the market seems to assume that normalization will not only occur in full but also follow a relatively smooth, linear path.
This is not impossible, but it requires near-perfect execution and a backdrop in which several external macro factors break DG’s way—variables outside the company’s control. For that reason, DG is not overpriced enough to warrant a bearish call, since the turnaround is clearly underway, but it does look like a case where capital arrived earlier than the normalization cycle. This compresses the margin of safety and makes the current risk-reward profile less compelling. With that in mind, Dollar General remains a firm Hold.