Dollar General Corporation (DG) Earnings

Management highlights

### Top-Line & Customer Trends * Gained market share in both highly consumable and non-consumable product categories for the quarter, marking the fourth consecutive quarter of positive customer traffic growth * Core low-income customers remain financially constrained, with higher fuel prices and reduced SNAP benefits offsetting any tax benefit gains; Dollar General grew share of wallet with SNAP customers despite an overall reduction in national SNAP spending * Accelerated trade-in customer growth across all income cohorts, with the largest increase in customer count coming from households earning over $100,000 annually, primarily from grocery and drug retail competitors * Maintains a strong pricing position within 3-4 percentage points of mass retailers, with over 2,000 total items priced at or below $1 ### Strategic Growth Pillars * **Enhance Customer Experience**: Expanded branded partnerships (launched three new brands including Holly Williams in the home category, following the successful 2025 launch of the Dolly Parton brand); scaled omnichannel delivery from ~18,000 stores via in-house MyDG delivery and third-party partners DoorDash and Uber Eats, with 80% of orders delivered within 1 hour and 50% delivered within 30 minutes; plans to pilot a delivery subscription program in late 2026; growing the DG Media Network, which drives personalized customer experiences and incremental advertising revenue for partners * **Elevate Brand**: Executing store remodel programs for the mature store base: on track to complete 2,000 full Project Renovate remodels (targeting 6% annualized comp sales lifts) and 2,250 lighter Project Elevate remodels (targeting 3% annualized comp sales lifts) in 2026, with 659 and 711 completed respectively in Q1 * **Drive Enterprise Efficiency**: Achieved productivity gains in distribution and transportation that partially offset higher fuel costs; advancing enterprise AI initiatives to streamline workflows and improve productivity across the business; continued SKU rationalization, with ~1,200 low-productivity SKUs removed over the past two years to improve inventory efficiency and in-stock rates * **Extend Reach**: Opened 190 new U.S. stores in Q1, on track to hit the full-year target of 450 new stores; continued testing of the MeSuper Dollar General format in Mexico, opening 5 stores in Q1 to bring the total to 21, on track to open ~10 total in 2026 ### Financial Performance * Gross margin expanded 65 basis points year-over-year to 31.6% of sales, driven by higher inventory markups, reduced shrink (28 basis point improvement) and lower inventory damages, partially offset by higher markdowns and transportation costs * SG&A increased 25 basis points to 25.7% of sales, due to higher depreciation, utilities and property taxes, partially offset by lower incentive compensation * Operating profit grew 10.8% to $638.5 million, with operating margin expanding 40 basis points to 5.9% of sales * Diluted EPS increased 12.4% to $2.00, exceeding internal expectations * Merchandise inventories totaled $6.6 billion at quarter-end, flat year-over-year and down 1.6% on an average per-store basis; full-year 2026 inventory growth is expected to lag sales growth

Guidance

- Net sales growth guidance for full-year 2026 is maintained in the range of 3.7% to 4.2% - Same-store sales growth guidance for full-year 2026 is revised upward to 2.2% to 2.7% from prior estimates - Full-year 2026 diluted EPS guidance is raised to $7.20 to $7.45, from the prior range of $7.10 to $7.30, with approximately 5 cents of the increase driven by a lower expected effective tax rate (now 24.5%) and the remaining 5 cents driven by Q1 2026 outperformance - Capital spending and real estate project plans are unchanged from prior guidance - Gross margin expansion is still expected for the full year 2026, driven by continued improvements in shrink and damages, growth of the DG Media Network, non-consumables expansion, supply chain productivity gains and improved category management - Modest SG&A leverage is still expected for full-year 2026, even with accelerated investments in AI and key strategic initiatives - Full-year guidance excludes any potential impact from future tariff refunds, as timing and amounts remain uncertain

Segment performance

Dollar General reports net sales of $10.8 billion in Q1 2026, a 3.4% year-over-year increase. Same store sales grew 2%, driven by 1.4% customer traffic growth and 0.5% average basket growth. All four merchandising categories delivered positive comp sales for the fifth consecutive quarter, with non-consumables outpacing consumables: non-consumables achieved a 4.6% combined comp sales increase, with strong growth led by the toys category. The Value Valley $1 price point offering, which includes 500 rotating items, outperformed the chain average with an 18.4% comp sales increase, with exceptional performance in health and beauty. Delivery sales contributed 70 basis points to the quarter's 2% comp sales growth.

Risks & headwinds

- Elevated and sustained fuel prices increase both consumer budget pressure (disproportionately impacting core rural and low-income customers) and higher company transportation and field costs - Ongoing macroeconomic uncertainty and shifting consumer behavior could lead to results differing from management projections - Easier year-over-year margin comparisons in Q1 become more challenging in the second half of 2026 - Increased competitive pressure for market share in the value retail segment could create pressure on profitability - The timing and amount of potential future IEPA tariff refunds remains uncertain, creating unaccounted-for variability in full-year results

Analyst Q&A

• Q: Matthew Boss (J.P. Morgan) asked if positive Q1 sales trends continued into May, how elevated gas prices will impact results, and what Dollar General is doing to capitalize on current consumer demand for value. /

  A: After two weeks of negative comps from winter storm store closures early in Q1, sales trended at the upper end of expectations for the rest of the quarter, and this positive trend continued into May. Elevated sustained gas prices above $4 per gallon have accelerated trade-in growth, particularly among the $100k+ annual income cohort, matching historical patterns. Dollar General is leaning into its strong everyday value position, adding targeted promotions, expanding its $1 price point offerings (including a new all-$1 frozen food section), and proactively marketing to new trade-in customers to retain them long-term.

• Q: Michael Lasser (UBS) asked if Dollar General is seeing increased retail competition that requires sacrificing profitability for market share, and if higher promotional activity is a reaction to this competitive pressure. /

  A: The increase in promotional activity is targeted and proactive, not reactive to competitors. Management notes consumer demand for value has increased across all income cohorts, and Dollar General is already well-positioned with strong everyday low pricing anchored by its popular $1 price point. Non-consumables have now delivered five straight quarters of growth outpacing consumables, balancing the portfolio, and management expects its proactive value focus to continue driving traffic and market share gains without undue profitability pressure.

• Q: Jihan Ma (Bernstein) asked how gross margin will trend as year-over-year shrink comparisons get tougher, and what gives management confidence that long-term 6% to 7% operating margin targets are sustainable. /

  A: Q1 2026 gross margin outperformed expectations, with 28 basis points of shrink improvement and better-than-expected damage reduction. While comparisons will get tougher and fuel costs will remain elevated for the balance of the year, management expects continued (more modest) improvement in shrink and damages, plus ongoing contribution from other drivers including DG Media Network growth, non-consumables expansion, supply chain productivity, and better category management. Long-term, management expects ~50 basis points of incremental gross margin from shrink and damages, 50 basis points from DG Media Network, and an additional 70 basis points from other initiatives, putting the 6% to 7% operating margin target within reach.

• Q: Simeon Gutman (Morgan Stanley) asked if long-term same-store sales can normalize to 3% and if delivery will remain a meaningful incremental growth driver. /

  A: Management notes the long-term framework targets 2% to 3% same-store sales growth, and the 2% comp delivered in Q1 paired with strong bottom-line growth demonstrates the business performs well within this range. COO Emily Taylor added that delivery is still early in full deployment, contributed 70 basis points to Q1 comps, is highly incremental and profitable today, drives larger basket sizes, increases existing customer purchase frequency, and attracts new customers. The upcoming delivery subscription pilot later this year is expected to drive further growth in this channel.