Making cents of the dollar store boom

Turns out, selling cheap stuff is still a great business model.

Dollar General delivered a strong third quarter earnings report, highlighted by same-store sales rising 2.5%, the retailer’s eighth straight quarter of comp growth. Shares climbed 13.94% today.

The company gained market share across both consumable and non-consumable categories, while executives also highlighted Dollar General’s shift from a growth-focused model to a more mature, profitability-oriented one. And the company raised its full-year fiscal guidance. All in all, a pretty impressive quarter.

Beneath the numbers

Dollar General’s upbeat results follow Dollar Tree’s great report yesterday. Dollar Tree rallied 3.7% on Wednesday, and shares rose another 2.61% today. But while both companies operate in the same space, the drivers behind their growth look very different.

Foot traffic at Dollar General rose 2.5% while average transaction size remained unchanged, a pattern consistent with its core low-income shoppers who visit frequently but spend less per trip. Dollar Tree’s same-store sales grew 4.2%, powered by a 4.5% jump in average ticket that more than offset a 0.3% decline in traffic—meaning fewer shoppers came in, but each spent more.

That dynamic reflects Dollar Tree’s unusual customer base: roughly 60% of its customers make over $100,000 a year, and only 10% earn below $60,000. With tariffs and inflation pushing even affluent households toward buying bargains, more higher-income shoppers are trading down.

But CEO Mike Creedon pushed back on the idea that wealthy customers are driving the gains. He said higher-income households actually spend less per visit, and that the real engine of growth is Dollar Tree’s loyal, lower-income core customer. Over time, he expects the newer, higher-income segment to deepen their baskets too, providing an additional tailwind for comps.

The upside of the downturn

In a low consumer confidence environment amplified by a weakening job market, dollar stores may be one of the few retail categories positioned to outperform in a potential downturn.

Layoff announcements have reached 1.1 million this year, the highest since the early pandemic era, according to Challenger, Gray & Christmas. Just yesterday, ADP released data that showed private employers cut 32,000 workers last month. And consumer confidence remains down in the dumps.

Shoppers are getting more cautious, and value retailers tend to thrive when wallets tighten. For Dollar General, that backdrop only adds to management’s optimism: the company plans more than 4,700 real estate projects next year, including 450 new US stores and 2,000 full remodels.

Dollar General is up 65.14% this year, and Dollar Tree has climbed 54.62% YTD. In this economy, dollar store investors are truly getting their money’s worth.—SY