Dollar General has emerged as one of the standout performers in the stock market during the early days of President Donald Trump’s second term.
Following Trump’s inauguration on January 20, the shares of the discount retail chain have surged by over 36% as of the close on Tuesday, marking the third-highest increase in the S&P 500, only surpassed by software firm Palantir and tobacco company Philip Morris International. In contrast, the consumer staples sector has collectively risen by just 6% since the inauguration, with Dollar General outperforming rivals such as Dollar Tree and Walmart.
The market’s shift toward defensive investments, such as consumer staples, plays a significant role in Dollar General’s success. Given the prevailing economic uncertainties surrounding inflation and trade policies, many investors are opting for safer investments.
“Historically, dollar stores have thrived in weaker economic climates, particularly when a recession seems imminent,” declared Arun Sundaram, senior vice president at CFRA Research.
In April, market sentiment soured sharply when Trump introduced substantial “reciprocal tariffs” against numerous trade partners, a move later adjusted to a flat 10% for 90 days.
Throughout this period of tariff uncertainty, Dollar General has maintained a strong performance, rising 5% in April, while the S&P 500 faced a decline of over 2% for the same month.
Analysts noted that Dollar General is less affected by tariffs compared to other firms, attributing this to the company’s product composition. Only an estimated 4% of its inventory consists of imports, according to KeyBanc Capital Markets analyst Bradley Thomas.
The retailer primarily focuses on consumable goods, such as food, which are less susceptible to tariffs compared to discretionary items like seasonal merchandise and home goods. Sundaram highlighted that consumables represented 82.2% of Dollar General’s sales last year, a stark contrast to the 48.8% of sales at Dollar Tree.
This sales mix helps mitigate the impact of tariffs on Dollar General, especially given that imports from China are currently subjected to a staggering effective tariff rate of 145%. The ongoing trade stalemate between the U.S. and China continues to pose challenges.
Dollar General’s stock is also recuperating from a significant downturn in August, triggered by an uninspiring earnings report and a subsequent reduction of the company’s guidance for the fiscal year. Despite current gains, shares remain over 36% lower than their 52-week high reached in May and have plummeted approximately 65% since hitting an all-time peak in October 2022.
“This stock has endured a tough stretch over the past few years,” remarked Sundaram.
Since rejoining the company in October 2023, Dollar General CEO Todd Vasos has implemented a turnaround strategy focused on enhancing productivity and optimizing existing stores, which has contributed significantly to the firm’s recent achievements, according to Joe Feldman, a senior research analyst at Telsey Advisory Group.
However, analysts caution that the retailer still faces intense competition from retail giants like Walmart, Amazon, and Costco. These industry leaders possess more formidable online infrastructures that position them favorably, particularly as Walmart’s membership service, Walmart+, continues to expand.
“Walmart presents a major challenge for Dollar General,,” Thomas remarked. “There is a risk that dollar stores could lose some of their traffic to Walmart’s growing delivery capabilities.”
The broader economic context may also pose additional challenges for Dollar General, especially if Trump’s tariff moratorium expires without securing new trade agreements. Tariff-induced inflation and the potential end of tax cuts instituted in 2017, as well as suggested changes to the Supplemental Nutrition Assistance Program, could strain the retailer’s lower-income clientele.
Despite these challenges, the discounter has seen an influx of middle-income customers opting to “trade down.” This shift could help mitigate losses among their traditional low-income base. However, Feldman warns that the core customer is already being stretched thin.
“While demand remains strong, the ability to meet that demand is not as robust at present,” Feldman stated. “This is a key issue that needs to be monitored moving forward.”
