Latest Dollar General Activity
Over the course of the last few years, most national discount retailers have been following a trend of store closures and corporate restructuring. However, one discount retailer appeared to stand above the rest in regards to footprint, stock performance, and overall corporate strength. Although this described Dollar General activity going into Q3 2024, the failure to meet expectations on earnings and profits has sparked a downward spiral that may have a larger impact on the Fortune 500 company’s future. Below is a deep dive into the effects of Dollar General’s expansion into their larger stores, how their earnings have impacted Q1 2025, and how this may affect the future of the company’s real estate strategy.
Dollar General Construction Strategies
Dollar General now plans to exclusively develop locations between 10,566 and 10,640 square feet. They have had a history of moving to larger locations in an effort to provide low-income households with a wider variety of purchasing options, and their newest models include the addition of fresh produce. The discount retailer has confirmed that it is their intention to eventually operate primarily in these types of locations.
Additionally, the new construction of all Popshelf locations will halt. In the last months of 2024, Dollar General outlined its plan to complete 4,870 U.S. real estate projects, including opening approximately 575 new stores, fully remodeling approximately 2,000 stores, partially remodeling 2,250 stores through its Project Elevate Program, and relocating 45 stores.
The 2,250 stores that will be remodeled through Project Elevate will include customer-facing physical asset updates, planogram optimizations, and expansions across the store. Older locations that are not due for a full remodel will undergo the Project Elevate remodeling.
Investors purchasing Dollar General locations with a smaller square footage can now expect them to trade at an increasingly higher cap rate. Meanwhile, investors that own Dollar Generals with a smaller footprint can expect an increased risk factor if the retailer abstains from investing any money into their locations.
Earnings
Dollar General’s market cap rate declined to $16 billion, compared to its high of about $59 billion in October 2022. Its stock dropped 60% since September 2024, following the earnings report for Q3 2024. Dollar General’s Q4 2024 earnings report recorded that same store sales increased by 1.2%, net operating profit decreased by 49.2%, and its diluted EPS dropped by 52.5%.
Wall Street analysts downgraded Dollar General’s stock from a Buy to a Hold, which further hurts expectations for the retailer’s future. Additionally, with inflation holding steady around 3% and tariffs being increased by the Trump administration, the retailer’s operating profit is expected to continue decreasing. Due to Dollar General’s import business model, there will be a continued trend of decreasing operating profit as the company either absorbs the costs of increased tariffs, or they pass the expenses along to the consumer.
Despite the slowdown in earnings, Dollar General is still outperforming its main competitors— Dollar Tree and Family Dollar—with 2024 revenue at more than $40 billion, compared to Dollar Tree and Family Dollar at a combined revenue of $31 billion.
Executive Decisions
In October 2024, Dollar General decided to separate all Dollar General Market and Dollar General Popshelf locations. The retailer stated its decision to detach the brands was because both brands target different consumer segments, and there was less synergy between the two than Dollar General was hoping for.
In January, Dollar General closed 27 stores, and only opened nine locations. During the same month, it laid off 60 corporate employees, which included half of its real estate department. In March, and in conjunction with the Q4 2024 earnings report, Dollar General announced a plan to close an additional 141 locations, including 96 Dollar Generals and 45 Popshelf locations. Compared to the initial plan to construct almost 600 locations, Dollar General is expected to take a major step back in their expansions in order to boost their margins in their existing locations.
Looking Ahead
The expansion slowdown is occurring throughout the discount retailer segment. Dollar Tree recently announced it is selling Family Dollar to enhance their business model and create an improved experience for consumers, rather than expanding. This decision is similar to Dollar General stopping its expansions in order to refine their existing stores.
The shifts in Dollar General’s activity only create uncertainty for its future. The increase in tariffs will impact the retailer, along with its consumers. With this change in activity, its expansions will remain stopped so it can focus on maintaining steady performance.
