Dollar General Corporation (DG Quick QuoteDG - Free Report) has made an impressive comeback, rising about 28.5% over the past three months. For investors who stayed invested during the retailer’s difficult stretch, this recent rally may feel like long-overdue validation. But with the sharp rebound in the stock, many are now asking a critical question — is it time to lock in gains, hold their position or invest more?

Closing yesterday’s trading session at $92.02, Dollar General has outpaced the industry, which has fallen 4.4%, and the broader S&P 500 index, which has declined 14.7% in the said period.

Dollar General has even outperformed its peers, such as Dollar Tree, Inc. (DLTR Quick QuoteDLTR - Free Report) , Costco Wholesale Corporation (COST Quick QuoteCOST - Free Report) and Target Corporation (TGT Quick QuoteTGT - Free Report) . While shares of Dollar Tree have risen 1.2% in the past three months, Costco and Target have declined 2.1% and 31.7%, respectively.

DG Stock Three-Month Performance

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Tailwinds Behind DG’s Momentum

Dollar General remains a compelling growth story in the retail space despite immediate margin pressure and a tough consumer environment. Thanks to its value-creating initiatives, defensive product mix and real estate growth strategy, the company has the capabilities to gain market share. Moreover, its efforts toward shrink mitigation are yielding tangible benefits and are expected to remain a tailwind throughout 2025. 

DG’s “back-to-basics” initiative has improved its operating foundation, positioning the company for sustainable growth in 2025 and beyond. Key achievements include a 6.9% inventory reduction per store and significant SKU rationalization — 1,000 SKUs removed — which enhanced productivity at both store and distribution center levels.

Looking forward, Dollar General plans an ambitious 4,885 real estate projects in 2025, encompassing 575 new stores in the United States and up to 15 new stores in Mexico, fully remodeling 2,000 stores, remodeling 2,250 stores through Project Elevate and relocating 45 stores. The "Project Elevate" program, targeting mature stores, aims to generate first-year comp sales lifts of 3%–5% while mitigating future maintenance expenses. This strategy complements the full remodel pipeline ("Project Renovate") and is expected to drive a 6%-8% sales lift. Together, these initiatives will refresh approximately 20% of Dollar General’s store base annually.

Dollar General is scaling its digital capabilities, leveraging its partnership with DoorDash and piloting same-day home delivery from 400 stores, with plans to reach up to 10,000 locations by year-end 2025. Early results are promising, showing higher average order values compared to in-store purchases. Integration of SNAP and EBT payments into delivery offerings enhances accessibility for core customers. These efforts, backed by the DG Media Network, are expected to accelerate customer acquisition, deepen engagement and contribute to gross margin improvement.

Despite a sales mix heavily skewed toward consumables, constituting 82% of total sales, Dollar General aims to rebalance its product mix by increasing non-consumable offerings by at least 100 basis points by 2027. This strategic shift reflects the company's commitment to optimizing profitability while sustaining robust top-line growth.

DG’s Long-Term Outlook

Management outlined a clear roadmap targeting net sales growth of 3.5%-4% annually starting in 2025, supported by approximately 2% new unit growth. From 2026, same-store sales growth is targeted at 2%-3%, with operating margin expansion to resume and potentially reach 6%-7% by 2028. Earnings per share (EPS) growth of at least 10% annually on an adjusted basis is anticipated beginning in 2026, alongside a disciplined capital allocation strategy. Capital expenditures are expected to normalize at 3% of sales, and share repurchases could resume as early as 2027.

Headwinds DG Needs to Tide Over

Dollar General’s core customer base, which is highly sensitive to inflation and economic pressure, continues to experience financial strain. Despite efforts to maintain low prices, traffic declined 1.1% in the final quarter of fiscal 2024, reflecting the challenges consumers are facing. The company is not expecting meaningful macroeconomic relief for its customer base in 2025.

Management expects selling, general and administrative expenses to deleverage in 2025, citing persistent headwinds such as retail wage inflation of 3.5%-4%, normalized incentive compensation (about $120 million impact) and elevated depreciation from prior capex cycles. The first half of fiscal 2025 is expected to be particularly pressured due to upfront remodeling costs and labor-related expenses. 

Dollar General projects EPS to be lower year over year in the first half. We foresee an 11.3% and 7.6% decline in the bottom line for the first and second quarters of fiscal 2025, respectively.

Management highlighted concerns over newly announced tariffs on products relevant to their assortment. Although it successfully mitigated similar impacts in 2018-2019 through selective price increases, the already financially stretched core consumer base remains sensitive to any price adjustments.

Here’s How Estimates Shape Up for DG

Reflecting a cautious sentiment around Dollar General, the Zacks Consensus Estimate for earnings per share has seen downward revisions. Over the past 30 days, analysts have lowered their estimates for the current and next fiscal years by 37 and 27 cents to $5.54 and $6.12 per share, respectively. 

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
 

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Is Dollar General Stock Undervalued or Overvalued?

Dollar General is currently trading at a forward 12-month price-to-earnings (P/E) ratio of 16.29. This valuation reflects a discount compared to the industry’s average of 29.95 and the S&P 500's P/E of 18.58. However, the stock appears overvalued compared to its median P/E level of 13.62, observed over the past year.

Dollar General is trading at a premium to Dollar Tree (with a forward 12-month P/E ratio of 13.65) and Target (10.13) but at a discount to Costco (47.75).
 

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Is Holding DG Stock the Best Option Now?

Dollar General’s recent rebound highlights its ability to regain investor confidence through strategic execution. The company’s renewed emphasis on core operations, store modernization and digital initiatives indicates a clear vision. While near-term pressures remain, particularly from external economic factors and internal cost headwinds, the company's proactive approach signals a stronger operational foundation. For current investors, holding onto this Zacks Rank #3 (Hold) stock could make sense. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.