Article Summary
The S&P 500 has been flat in 2025, but Dollar General shares have risen by around 15%. Despite the strong performance, investors should understand the overlooked “growth” story before buying Dollar General stock. The retailer focuses on low price points and targets underserved markets. However, low price points do not always mean low prices, and Dollar General’s business model could face headwinds as consumer staples sales grow while higher-margin categories decline.
What This Means for You
- Dollar General’s low price point model performs relatively well during periods of economic weakness, making it a potential safe-haven investment.
- Investors should be aware of Dollar General’s declining profit margins due to the growing percentage of consumer staples sales, which have higher revenues but lower margins than other product categories.
- The company is working on a turnaround, focusing on cutting costs, adjusting its product mix, and upgrading stores, making it a long-term investment opportunity for the right kind of investor.
- While Dollar General might perform well in a recession, understanding its underlying business headwinds is crucial before investing.
Original Post
The S&P 500 (SNPINDEX: ^GSPC) has essentially gone nowhere so far in 2025, but it has done so in an exciting way. Meanwhile, Dollar General (NYSE: DG) shares have risen while the S&P 500 index was falling. As of this writing, Dollar General is up around 15% while the market is flat.
However, it may not be wise to rush out and buy Dollar General stock before understanding its overlooked “growth” story. Here’s why.
What does Dollar General do?
Dollar General is, in a broad sense, a retailer. However, it targets selling products at low price points and underserved markets that larger retailers, such as Walmart and Target, do not cater to as effectively. The primary goal is to provide a mix of convenience and low price points for consumers.
Image source: Getty Images.
It is important to note that while Dollar General offers low-price points, these do not always translate to the cheapest. Instead, the company targets customers who either cannot afford mega-packs from big-box stores or do not want to travel to these stores for their shopping needs.
Currently, Dollar General’s low-price point model is favored on Wall Street. The model tends to outperform during times of economic uncertainty, and Dollar General’s target customers might need to continue shopping at its stores during a potential recession. However, there are more nuanced factors to consider in Dollar General’s business model.
How does Dollar General make the most money?
Much of Dollar General’s offerings consist of consumer staples items, such as personal hygiene products, paper products, and food. In 2024, these categories accounted for 82.2% of sales. Seasonal goods, home products, and clothing made up the remaining 10%, 5.1%, and 2.7%, respectively, which are vital for the company’s profit margin. Though consumer staples have high revenues, they have lower profit margins compared to Dollar General’s other product categories. For context:
In a concerning trend for the company, consumer staples sales have been increasing as a percentage of Dollar General’s revenue. As this category continues to dominate, the profit margins are expected to drop. This can affect the overall performance of the company’s stock.__
In recent years, Dollar General reportedly launched a strategic initiative to increase its clothing and home product offerings. The decision was made to further diversify the company’s revenue streams and move away from its low-margin sales.__
Dollar General is working on a turnaround
Although Dollar General has been performing relatively well, it is just as susceptible to economic downturns as any other company.__
However, there is is a considerable difference between investing in a company because of its resilience during recessions and investing in a company because of its growth potential. Dollar General is struggling to manage its business despite a positive trend in consumer staples sales. Investors should consider the underlying factors influencing the company’s growth before investing their money.__
The company is working on a turnaround and focusing on reducing costs, improving its product mix, and upgrading its stores to improve its performance in the long-term. This presents an opportunity for investors who are willing to commit to the company’s growth and development in the upcoming years.
Key Terms
- Low Price Points
- Turnaround
- Consumer Staples
- Margins
- Retailers
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