Breaking Down Dollar General Corporation (DG) Financial Health: Key Insights for Investors

You're watching Dollar General Corporation (DG) because the discount retail space is a crucial barometer for the American consumer, and honestly, you need to know if their recent momentum is a real turnaround or just a tactical bounce. The direct takeaway is that Dollar General is executing a solid operational recovery, raising their full-year guidance, but they're still wrestling with internal cost pressures. Their latest Q2 2025 results showed net sales jumping to $10.7 billion, a 5.1% year-over-year increase, driven by a strong 2.8% rise in same-store sales, which is defintely a win in this environment. The company has since raised its fiscal year 2025 diluted earnings per share (EPS) forecast to a range of approximately $5.80 to $6.30, which is a clear signal of confidence in their strategy. But, their 'Back to Basics' plan-which includes a CapEx investment of $1.3 billion to $1.4 billion for store remodels-is the real lever here, aiming to capture the 'trade-in' customer (higher-income shoppers seeking value) while keeping their core demographic loyal. We need to dig into whether that store-level investment is enough to offset the persistent headwind of higher selling, general, and administrative (SG&A) expenses; let's break down the true financial health behind those top-line numbers.

Revenue Analysis

If you're looking at Dollar General Corporation (DG), the direct takeaway is that its revenue engine remains incredibly consistent, anchored by recession-resistant spending on essentials. For the fiscal year 2025, which ended January 31, 2025, the company delivered annual revenue of $40.61 billion. This steady performance is a core reason why DG is often seen as a defensive play in retail.

The year-over-year growth rate for that fiscal year was 4.96%, a solid jump from the 2.24% growth seen in the prior year. Honestly, that kind of consistent growth, even as inflation pressures the core customer, shows the power of their value proposition. For the trailing twelve months (TTM) ending August 1, 2025, the revenue figure climbed even higher to $41.65 billion, suggesting a continued upward trajectory. That's a strong signal.

When you break down the primary revenue streams, you see immediately where the company's focus-and its risk-lies. Dollar General doesn't have a regional split; nearly all its revenue comes from the United States. Instead, we look at the product mix, which is heavily skewed toward low-margin, high-frequency items. Here's the quick math on the segment contribution based on the most recent TTM data available ending June 30, 2025:

Consumables-think food, paper products, and cleaning supplies-are the defintely dominant segment, accounting for over 82% of sales. This reliance means Dollar General is a volume business, which is why same-store sales growth is so critical. Q2 2025 saw same-store sales increase by 2.8%, driven by a higher average transaction amount.

The significant change in the revenue stream isn't a product category shift, but a strategic one. Management is focusing on driving growth through better execution and store formats. They are pushing for market share gains in both consumables and non-consumables, which they achieved in Q1 2025. This strategy is supported by clear actions:

• Opening new stores, including expansion into Mexico.
• Remodeling stores via Project Elevate and Project Renovate.
• Expanding digital and delivery options like EBT/SNAP payment integration with DoorDash.

These initiatives are designed to capture a wider customer base-both the core customer and higher-income trade-in customers-and boost transaction size, which is a smarter way to grow than just relying on new store openings. Before diving deeper into the profit side, you might want to read Exploring Dollar General Corporation (DG) Investor Profile: Who's Buying and Why? for context on who is betting on this model. Finance: check the impact of the new store formats on average transaction size by end of next week.

Profitability Metrics

You want to know if Dollar General Corporation (DG) is making money efficiently, and the short answer is yes, but it's a story of recent turnaround. The company's full fiscal year 2025 (FY2025) profitability metrics show a contraction compared to the prior year, but the most recent quarterly data reveals a significant operational recovery that you need to focus on.

For the full FY2025, Dollar General Corporation reported total revenue of $40.61 billion, but net income declined to $1.13 billion, translating to a net profit margin of approximately 2.78%. This contraction was a near-term risk, but the core business is proving resilient.

Here is the quick math on profitability for the full fiscal year 2025, compared to the general retail industry average (which is a good proxy for the sector):

Dollar General's full-year margins are slightly below the general retail average, but honestly, that's expected for a discount retailer focused on high-volume, low-price consumables. The real story is the trend in profitability over time, which shows a significant recovery in the latter half of the year.

Operational Efficiency and Margin Recovery

The operational efficiency analysis shows a clear pivot. While the full-year figures were dragged down by earlier pressures, the second quarter of fiscal 2025 (Q2 2025) saw a strong rebound. Gross profit margin expanded by 137 basis points (1.37 percentage points) year-over-year to 31.3% in Q2 2025. That's a huge win in a tight margin business. The corresponding operating profit margin for Q2 2025 also rose to 5.6% on net sales of $10.7 billion, with net income reaching $411.4 million. The company is improving its core merchandise profitability.

This margin expansion is defintely not random; it's a direct result of the company's 'Back to Basics' strategy. The primary drivers are clear:

• Lower shrink (inventory loss from theft or damage).
• Higher inventory markups (better initial pricing).
• Improved inventory management, reducing damages.

Still, not everything is perfect. Selling, General and Administrative (SG&A) expenses rose to 25.8% of sales in Q2 2025, up 121 basis points. This is mainly due to higher retail labor costs, incentive compensation, and repairs. The company is investing in its stores and people to drive the turnaround, which puts pressure on the operating margin, but it's a necessary trade-off for long-term health. The goal is to see those investments lead to sustained sales growth that outpaces the expense growth.

Comparison with Competitors

When you compare Dollar General Corporation to its closest peer, Dollar Tree, Inc., the picture is mixed but encouraging for DG's turnaround. Dollar Tree's Q2 2025 operating margin from continuing operations was 5.1%, which is slightly below Dollar General's Q2 2025 operating margin of 5.6%. This suggests that Dollar General's recent operational improvements are putting it on par with, or even slightly ahead of, its primary competitor in terms of core operating efficiency right now. You can find more details on the institutional interest in the company by Exploring Dollar General Corporation (DG) Investor Profile: Who's Buying and Why?

The key action for you is to monitor the SG&A-to-sales ratio in the next two quarters. If the gross margin gains from lower shrink and better inventory control continue to outpace the rising SG&A costs, the operating margin will expand further, confirming the success of the operational turnaround.

Debt vs. Equity Structure

You want to know how Dollar General Corporation (DG) funds its massive growth, and the short answer is: heavily through debt, but they are actively working to dial that back. As of the quarter ending July 2025, Dollar General's financial leverage is significant, with a debt-to-equity (D/E) ratio of 2.13. This means for every dollar of shareholder equity, the company uses over two dollars of debt to finance its assets.

Here's the quick math on their capital structure, which includes both debt and capital lease obligations (a form of off-balance sheet financing, which is common in retail). The total debt load is substantial, but it's important to see the breakdown.

• Short-Term Debt & Capital Lease Obligation (Jul 2025): $1,522 million
• Long-Term Debt & Capital Lease Obligation (Jul 2025): $15,546 million
• Total Stockholders' Equity (Jul 2025): $8,012 million

To be fair, a D/E ratio of 2.13 is high, especially when compared to the company's own 13-year median of 1.86. A higher ratio signals aggressive growth financing, which can lead to volatile earnings because of the added interest expense. Still, in the discount retail sector, this level of debt is often used to fund rapid store expansion and supply chain investments, which you can read more about in their Mission Statement, Vision, & Core Values of Dollar General Corporation (DG).

The good news is that management is actively addressing this leverage. In its recent capital allocation strategy, Dollar General has paused share repurchases and is using excess cash flow to decrease its outstanding debt. This is a clear shift toward strengthening the balance sheet over boosting earnings per share (EPS) via buybacks.

This focus on deleveraging is already showing up in their actions and credit ratings. For the quarter ending August 1, 2025, the company showed a net issuance of debt of -$1.3 billion, which means they paid down more debt than they took on. Plus, they plan to redeem $600 million of notes due in 2027, as part of a broader plan to reduce reported debt by about $2 billion across 2024 and 2025.

What this estimate hides is the mixed message from rating agencies. In March 2025, Moody's downgraded the senior unsecured notes rating to Baa3 from Baa2, citing decreased interest coverage. However, S&P Global affirmed its 'BBB' long-term issuer credit rating in September 2025 and revised the outlook to stable, expecting debt-to-EBITDA to improve to about 3.1x in 2025. The company is defintely balancing its historical reliance on debt for growth with a new, necessary focus on financial discipline.

Here's a snapshot of the recent credit rating activity:

Finance: Monitor the next two quarterly reports for continued net debt reduction to confirm the deleveraging trend.

Liquidity and Solvency

You need to know if Dollar General Corporation (DG) can cover its near-term bills, and the data shows a tight but manageable liquidity position, which is typical for a retailer. The company's strength lies not in its cash-on-hand ratios, but in its ability to generate significant cash from operations, which hit $3.0 Billion for the fiscal year ending January 2025.

Assessing Dollar General Corporation's Liquidity

A quick look at the liquidity ratios-the Current Ratio and the Quick Ratio (or Acid-Test Ratio)-gives us a clear, if slightly concerning, picture. The Current Ratio, which measures current assets against current liabilities, recently stood at about 1.25x. This means Dollar General Corporation has $1.25 in short-term assets for every $1.00 in short-term debt, which is defintely a healthy signal for meeting immediate obligations.

But here's the quick math: the Quick Ratio, which strips out inventory-the least liquid current asset-was much lower at 0.27x as of the quarter ending July 2025. This sharp drop tells you the company relies heavily on selling its stock of goods to pay its bills. For a retailer, that's not a death knell, but it's a tight spot.

• Current Ratio: 1.25x (Sufficient short-term coverage).
• Quick Ratio: 0.27x (Heavy reliance on inventory sales).

Working Capital and Cash Flow Overview

Dollar General Corporation's total Working Capital-Current Assets minus Current Liabilities-was reported at approximately $1.3 Billion. This positive figure indicates a cushion of operational liquidity, but the trend is what matters. The change in working capital for the quarter ending August 1, 2025, was $161.675 Million, which was a significant drop of 54.73% from the same period last year. This deceleration suggests the company is becoming less efficient at managing its short-term assets and liabilities, or is intentionally running tighter on inventory after past issues.

The Cash Flow Statement, however, provides a stronger counterpoint to the low Quick Ratio. The company's core strength is its cash generation from its daily business:

• Operating Cash Flow (CFO): A robust inflow of $3.0 Billion for the fiscal year ending January 2025, up 25.3% year-over-year. This is the lifeblood of the company, showing its core retail business is a powerful cash engine.
• Investing Cash Flow (CFI): A substantial outflow of -$1.31 Billion. This negative figure is generally a good sign, as it reflects the company's planned capital spending of $1.3 to $1.4 billion for fiscal year 2025, primarily for opening new stores, remodels, and other real estate projects.
• Financing Cash Flow (CFF): An outflow of -$1.29 Billion, largely driven by debt management and dividend payments.

What this estimate hides is the inventory risk. The low Quick Ratio is a potential liquidity concern, but the consistently strong CFO mitigates this risk significantly. Dollar General Corporation can generate enough cash from operations to service its debt and fund its significant capital expenditures. You can dive deeper into the company's overall financial picture in our full post: Breaking Down Dollar General Corporation (DG) Financial Health: Key Insights for Investors.

Valuation Analysis

You're looking at Dollar General Corporation (DG) after a strong run, but you need to know if the market has gotten ahead of itself. The quick answer is that DG appears to be trading near its historical valuation averages, suggesting it is currently fairly valued, but with a clear upside potential of about 13% to 20% based on analyst consensus, which is a defintely compelling margin.

The stock has seen a significant rebound, climbing over 34.04% in the last 12 months, recovering from a 52-week low of $66.43 in January 2025. The current price of approximately $103.33 (as of mid-November 2025) is still trading below its 52-week high of $117.95 from August 2025, showing room to run.

Is Dollar General Corporation (DG) Overvalued or Undervalued?

To assess the valuation, we look at the core multiples. Dollar General Corporation's trailing Price-to-Earnings (P/E) ratio is sitting at roughly 19.1x, which is right in line with its 10-year historical average of 19.29x. This signals a neutral valuation, but the forward P/E drops to about 15.48x, implying a healthy expectation for earnings growth in the next year.

Here's the quick math on key valuation metrics for the 2025 fiscal year:

• Trailing P/E Ratio: 19.1x
• Price-to-Book (P/B) Ratio: 2.86x
• EV/EBITDA Ratio: 12.55x

The Enterprise Value-to-EBITDA (EV/EBITDA) of 12.55x is also below its 5-year average of 14.4x, suggesting the company's operating cash flow is relatively cheap compared to its total enterprise value (market cap plus debt, minus cash). The P/B ratio of 2.86x is low compared to its 13-year median of 4.72x, which suggests the stock is inexpensive relative to its net asset value.

Dividend and Analyst Sentiment

For income-focused investors, Dollar General Corporation offers an annual dividend of $2.36 per share, translating to a current dividend yield of approximately 2.29%. The payout ratio-the percentage of earnings paid out as dividends-is a comfortable 43.6%. A payout ratio under 60% is generally considered sustainable, meaning the company has plenty of room to reinvest in the business or raise the dividend later.

What this estimate hides is the split among Wall Street analysts. While the consensus rating is a 'Moderate Buy' or 'Hold', the average price target is set between $116.48 and $121.07. This means analysts see a potential price appreciation of up to 20.6% from the current price level.

Finance: Review the full analysis on the company's operations and strategy in Breaking Down Dollar General Corporation (DG) Financial Health: Key Insights for Investors to confirm the earnings growth projections that underpin the forward P/E and analyst targets by next week.

Risk Factors

You're looking at Dollar General Corporation (DG) because its value proposition-everyday low prices-should be a winner in an inflationary environment, but the financial results tell a more complex story. The biggest risk isn't just external competition; it's the internal operational drag that has compressed margins, even as sales grow.

The company's ability to execute its turnaround strategies will defintely determine if it can meet its fiscal year (FY) 2025 guidance of $5.20 to $5.80 in diluted Earnings Per Share (EPS) and 1.5% to 2.5% same-store sales growth. Here's the quick math: if operational costs aren't controlled, even a strong top line won't translate to profit.

• Near-Term Headwind: Inventory shrinkage is a massive drain.
• Long-Term Headwind: Macroeconomic pressure on the core customer.

Operational and Financial Risks

The most immediate and controllable risk is operational efficiency, specifically inventory shrinkage (the loss of inventory due to theft, damage, or error). This has been significantly elevated and materially impacted results. While the Q1 2025 gross margin saw an improvement of 78 basis points to 31.0% of net sales, driven partly by lower shrink, the risk remains a constant battle for a high-volume, low-price retailer. For context, Selling, General, and Administrative (SG&A) expenses jumped 8.5% to $2.66 billion in Q1 2025, a clear sign of rising labor and operating costs impacting profitability.

Financially, the company is managing its debt. While the debt-to-equity ratio is manageable at 0.71, the company has paused share repurchases in 2025 to preserve its investment-grade credit rating, which tells you they are prioritizing balance sheet health over immediate shareholder return.

External and Strategic Risks

Dollar General Corporation (DG) operates in an intensely competitive landscape, not just against discount rivals like Dollar Tree and Walmart, but also increasingly against online platforms. The core customer-low and fixed-income households-is highly sensitive to economic shifts. High inflation and potential changes in government assistance programs could reduce discretionary spending, impacting sales beyond consumables.

Strategically, the company is exposed to rising tariffs, as approximately 70% of its private-label goods are still imported from China. This exposure means a tariff increase could quickly compress margins, forcing the company to either absorb the cost or pass it on to its value-conscious customers. The new CEO and the 'Back to Basics' strategy are the company's bet on a turnaround. You can read more about the company's direction here: Mission Statement, Vision, & Core Values of Dollar General Corporation (DG).

Mitigation and Actionable Insights

Management is taking clear action. The 'Back to Basics' strategy centers on improving in-store execution and reducing operational friction. This includes the major store modernization push, 'Project Elevate' and 'Project Renovate.' These remodels, of which 668 were completed in Q1 2025, are projected to deliver a 3% to 8% annualized comparable sales lift in those locations. They are also expanding their customer base, successfully attracting middle- and upper-income shoppers looking for value, a key defense against a decline in their core customer's spending.

They're not just cutting costs; they're investing in better store-level execution and technology. This is a critical pivot. If they can sustain the Q1 2025 momentum of 2.4% same-store sales growth and continue to reduce shrink, the stock has room to run. But if store manager turnover remains high, or if the tariff risk materializes, the margin pressure will intensify again.

Growth Opportunities

You need to know where Dollar General Corporation (DG) is putting its capital to drive future returns, and the answer is simple: more, bigger, and better stores, plus a quiet push into digital convenience. The company's strategic real estate plan for fiscal year 2025 is the primary growth engine, backed by a significant operational cleanup.

For FY2025, Dollar General is projecting net sales growth between 4.3% and 4.8%, a revised outlook after a strong start to the year. This growth isn't just organic; it's fueled by a planned capital investment of $1.3 billion to $1.4 billion for real estate projects. That's a clear signal that the brick-and-mortar model, especially in rural America, still works.

Strategic Initiatives and Near-Term Revenue Drivers

The core of the growth strategy revolves around store optimization and a renewed focus on the basics, which they call the 'Back to Basics' strategy. This operational rigor is already paying off, notably through shrink mitigation (reducing inventory loss), which helped expand the gross margin by 137 basis points in Q2 2025. That's a huge lever for profitability.

The real estate plan for FY2025 includes approximately 4,885 projects, with the goal of improving the customer experience and driving higher sales per store.

• Open 575 new U.S. stores, plus up to 15 in Mexico.
• Execute 2,000 full remodels and 2,250 'Project Elevate' partial remodels.
• Relocate approximately 45 stores to better sites.

Nearly all of the new locations-over 80%-will be in the new, larger format of 8,500 to 9,500 square feet. This shift allows for expanded product offerings, including fresh produce and more cooler space, which directly increases basket size and attracts a higher-income 'trade-in' customer. The remodels alone are expected to generate an annualized comparable sales lift of 3% to 8% for those locations.

Earnings Projections and Competitive Edge

The company's revised full-year earnings per share (EPS) guidance is now between $5.80 and $6.30. This projection is underpinned by a strong competitive advantage: unparalleled penetration in rural markets, reaching about 75% of the U.S. population within a five-mile radius. This captive customer base provides stability, especially when economic pressures push consumers to seek value.

The drive into digital is also a defintely smart move. Dollar General is expanding its exclusive delivery partnership with DoorDash and its in-house same-day service, which is now available in over 3,000 locations, with plans to integrate SNAP/EBT for online orders. Plus, the DG Media Network, their retail media arm, grew its volume by more than 25% in Q1 2025, creating a new, high-margin revenue stream that doesn't rely on inventory.

Here's the quick math on the sales outlook:

What this estimate hides is the ongoing pressure on the core, lower-income consumer, but the focus on better operations and the 'trade-in' customer should provide a buffer. For a deeper dive into the balance sheet health supporting this expansion, you should check out Breaking Down Dollar General Corporation (DG) Financial Health: Key Insights for Investors.

Next Step: Portfolio Manager: Assess the impact of the $5.80 to $6.30 EPS guidance on your valuation model by the end of the week.