Dollar General Q2 Sales Up 5 Percent

Dollar General(NYSE:DG) reported its second quarter 2025 earnings on August 28, 2025, posting net sales of $10.7 billion, up 5.1% year-over-year, same-store sales growth of 2.8%, and diluted EPS increased 9.4% to $1.86. Management raised its fiscal 2025 guidance for net sales growth to 4.3%-4.8%, same-store sales to 2.1%-2.6%, and EPS (diluted, GAAP) to $5.08-$6.30, driven by strong gross margin expansion, outsized shrink reduction, robust digital progress, and improved execution in core and trade-in customer cohorts. The following analysis examines specific strategic advancements, operational inflections, and forward risks impacting Dollar General’s investment thesis.

Shrink reduction drives gross margin expansion for Dollar General

Gross profit margin increased by 137 basis points year-over-year to 31.3%, primarily due to an impressive 108 basis point improvement in shrink (inventory loss from theft, error, or damage), while damages improvement began to contribute incrementally. Management indicated that shrink could ultimately deliver more than the 80 basis point operating margin tailwind assumed in its long-term 6%-7% target model for Dollar General's financial framework, with results significantly beating expectations for both the pace and scale of improvement.

"Our focus on reducing shrink has continued to produce positive results, including a healthy year-over-year improvement of 108 basis points in the second quarter. We're excited to be outperforming the shrink reduction expectations contemplated within our long-term financial growth framework in terms of both timing and magnitude. Given these results, we are optimistic about the potential for shrink reduction to contribute more than 80 basis points toward the operating margin goal of 6% to 7% contemplated within our long-term financial framework."
-- Kelly Dilts, CFO

Outperformance on shrink not only directly lifts earnings power, but also signals operational discipline and increases visibility to Dollar General’s mid-term margin ambitions despite retail sector volatility.

Digital and delivery expansion opens new growth runway

Dollar General significantly accelerated its digital strategy, with DoorDash delivery sales growing over 60% year-over-year, and its proprietary DG Delivery is expected to reach more than 16,000 stores (up from a previous target of approximately 10,000) by year's end. The recent Uber Eats partnership will add delivery coverage to approximately 14,000 stores in the third quarter, highlighting a unique value proposition in underpenetrated rural U.S. markets.

"We are also excited to note that we now expect to offer DG delivery for more than 16,000 stores by year's end, compared to our previous expectation of approximately 10,000 stores. And most recently, we entered a partnership with Uber Eats to further expand the reach of our delivery capabilities as we provide value and convenience to customers on their platform. We have already expanded to approximately 4,000 stores with Uber as of the second quarter and expect to be in approximately 14,000 stores by the end of the third quarter. Collectively, more than 75% of orders through these offerings are delivered in one hour or less. Ultimately, we believe this suite of delivery options will introduce new customers to Dollar General and drive incremental sales growth while also further enhancing the value and convenient proposition for our existing customer base."
-- Todd Vasos, CEO

Rapid acceleration in digital delivery greatly broadens Dollar General’s total addressable market, particularly among both existing and trade-in consumers, while fortifying its rural competitive moat against mass, grocery, and e-commerce players.

Remodel and non-consumable strategies strengthen traffic and comp sales

The new "Project Elevate" remodel program debuted in 2025, targeting portions of the mature store base and producing initial annualized comp sales lifts of 3%-5%, while the established "Project Renovate" delivered 6%-8% first-year annualized comp sales gains. Non-consumable categories achieved positive same-store sales growth in all three major segments (≥2.5%), and Dollar General’s PopShelf format reported continued strong comps, underpinned by improved execution and a successful “treasure hunt” merchandising strategy.

"We completed 729 Project Elevate remodels in Q2 and an additional 592 Project Renovate remodels during the quarter. While still early, we expect to reach our goal of delivering first-year annualized comp sales lifts in the range of 6% to 8% for Project Renovate stores and 3% to 5% for Project Elevate stores. Importantly, we've seen significant improvements in customer satisfaction in these locations upon completion of the remodels. And we believe the improved performance and customer response in these stores paves the way to make Project Elevate a key component of our real estate strategy in the years ahead."
-- Todd Vasos, CEO

Sustained improvement in mature store productivity and shopper experience via targeted capital investment amplifies the long-term ability to drive comp sales, enhance mix, and extend Dollar General’s value proposition.

Looking Ahead

Management raised its fiscal 2025 guidance to net sales growth of 4.3%-4.8%, same-store sales growth of 2.1%-2.6%, and EPS of $5.08 to $6.30, with approximately 4,885 real estate projects planned, including 575 new U.S. and up to 15 Mexico store openings. Full-year capital expenditures are expected at $1.3 billion to $1.4 billion. Dollar General anticipates both shrink and damages to remain margin tailwinds, although incentive compensation (approximately $200 million) represents a near-term cost headwind. No share repurchases are planned in the current outlook.

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This article was created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.