Published
# Dollar General Corporation (DG) — Narrative, Second Quarter Fiscal 2026 Dollar General's fiscal year ends on the Friday closest to January 31. "Fiscal 2025" is the 52-week year ended January 30, 2026; "fiscal 2026" is the 52-week year ending January 29, 2027. The second quarter of fiscal 2026 is the 13 weeks ended July 31, 2026. Sources: Annual Report on Form 10-K for fiscal 2025 (accession 0001104659-26-032325, filed March 20, 2026); Quarterly Report on Form 10-Q for the quarter ended July 31, 2026 (accession 0001104659-26-101932, filed August 27, 2026); and the earnings releases furnished on Form 8-K for the fourth quarter of fiscal 2025 (accession 0001104659-26-026697), the first quarter of fiscal 2026 (accession 0001104659-26-069198) and the second quarter of fiscal 2026 (accession 0001104659-26-101918). ## Business *From the fiscal 2025 Form 10-K, accession 0001104659-26-032325.* Dollar General is the largest discount retailer in the United States by number of stores. It sells everyday necessities — packaged and refrigerated food, paper and cleaning products, health and beauty items, pet supplies — along with seasonal goods, home products and basic apparel, mostly at price points of $10 or less, from small-box stores located close to its customers. Its core customers are low- and fixed-income households, often in places underserved by other retailers, including grocers: about 80% of its stores are in towns of 20,000 or fewer people, and about 75% of the U.S. population lives within five miles of a Dollar General store. Revenue is merchandise sales through its stores, reported in four categories. The company reports a single operating segment, and its store operations are primarily in the United States, with a small presence in Mexico. As of February 27, 2026 the company operated 20,959 stores in 48 U.S. states and Mexico (17 of them in Mexico), and employed about 194,000 full- and part-time staff. The store base had reached 21,148 by July 31, 2026, the end of the second quarter of fiscal 2026. Stores average about 7,500 square feet of selling space. The current primary new-store format averages about 8,500 square feet, which leaves room for more coolers, a larger health and beauty section and, in some stores, produce. **How it makes money.** The model is a limited assortment bought in large volumes, a low-cost building and a lean operating approach. Together these let the company price competitively with the largest discounters while keeping store capital needs low. Both national brands and private brands are sold, the private brands often at substantial discounts to national equivalents. The company has posted positive same-store sales every year since 1990 except 2021. Sales are heavily weighted to consumables, which carry the lowest gross margins. Seasonal and home products carry the highest. Fiscal 2025 net sales by category: - **Consumables** — 82.0% of net sales ($35.05 billion): paper and cleaning, packaged food, perishables, snacks, health and beauty, pet and tobacco. - **Seasonal** — 10.1% ($4.33 billion): holiday items, toys, electronics, stationery, prepaid phones, gardening, hardware and automotive. - **Home products** — 5.2% ($2.21 billion): kitchen supplies, cookware, small appliances, storage, and bed and bath soft goods. - **Apparel** — 2.7% ($1.13 billion): basic clothing, socks, underwear, disposable diapers and shoes. **Supply chain.** Merchandise moves through 20 non-refrigerated distribution centers, ten cold-storage centers and four combination centers (as of February 27, 2026), and is delivered largely by the company's private truck fleet. The two largest suppliers accounted for about 11% and 8% of fiscal 2025 purchases. Only about 4% of purchases at cost were imported directly, but many domestic vendors import products or components themselves. **Growth levers.** The company has four stated operating priorities: driving profitable sales growth, capturing growth opportunities, enhancing its position as a low-cost operator, and investing in its teams. The main levers are: - **New stores and Mexico.** 589 new stores opened in fiscal 2025, including 8 Mi Súper Dollar General stores in Mexico, where the first stores opened in 2023. - **Remodels.** Project Renovate is the full-remodel program; Project Elevate, a partial remodel launched in 2025, refreshes merchandising in mature stores. - **Digital and delivery.** The Dollar General app, myDG Delivery and third-party delivery are available in the majority of stores. - **DG Media Network.** A retail-media platform that connects brand partners with the company's shoppers. - **pOpshelf.** A non-consumables-focused small-box concept. New pOpshelf openings were paused in 2025 while its strategy is re-evaluated; 180 standalone pOpshelf stores were operating at the end of fiscal 2025. Its primary direct competitors are Walmart, Family Dollar and Dollar Tree. The company was founded in 1939 and has been listed on the New York Stock Exchange under "DG" since November 2009, when its shares returned to public trading after a 2007 buyout by funds affiliated with KKR. ## Risk factors *From the fiscal 2025 Form 10-K, accession 0001104659-26-032325. The second-quarter Form 10-Q (accession 0001104659-26-101932) reports no material changes beyond the developments described in its Executive Overview: tariff refunds, higher fuel costs, and trends in shrink and damages.* - **A financially stretched core customer.** Many customers have fixed or low incomes. Anything that cuts their disposable income can reduce spending or push purchases toward lower-margin consumables. The 10-K names unemployment, inflation (food-at-home inflation moderately re-accelerated in 2025), fuel and energy costs, interest rates, and cuts to government assistance. On assistance, it cites the 2025 changes to SNAP work requirements and, from January 2026, some states excluding product categories that SNAP historically covered. These pressures fall harder on non-consumables and on pOpshelf. - **Tariffs and trade.** A substantial share of imported merchandise, direct and through vendors, comes from China. In 2025 the U.S. imposed additional tariffs on many trading partners. Higher duties that the company cannot offset could hurt margins or demand. On February 20, 2026 the U.S. Supreme Court invalidated tariffs imposed under the International Emergency Economic Powers Act (IEEPA), leaving uncertainty over refunds and replacement tariffs. - **Execution of initiatives.** Results depend on many concurrent initiatives in testing or rollout: remodels including Project Elevate, international expansion, pOpshelf, digital, shrink and damage reduction, private brands, supply chain and technology. Failures can be costly. In the fourth quarter of 2024 the company recorded significant impairments, mostly for pOpshelf, and in the first quarter of fiscal 2025 it closed 45 pOpshelf stores and converted six more to Dollar General stores. - **Competition.** Rivals range from discount, mass, grocery, drug and convenience stores to warehouse clubs and online retailers, and several have greater resources. Some are expanding delivery and digital shopping while the company does not offer traditional online shopping to a significant degree. Competitive pressure can force price cuts and limit the company's ability to pass on cost increases. - **Real estate and new-store returns.** Growth depends on opening, relocating and remodeling stores on time and on budget. The company cites zoning restrictions and local moratoria on small-box discount stores among the obstacles. Elevated inflation and interest rates have significantly raised new-store opening and occupancy costs, which pressures projected new-store returns and has influenced how many new stores the company plans. - **Shrink, damages and inventory.** Inventory shrinkage and damages are significant. High shrink has contributed to store closures and asset impairments in the past. Inventory was about 44% of total assets (excluding goodwill, operating lease assets and other intangibles) at January 30, 2026, so misjudging demand can force markdowns and weaken cash flow. - **Labor costs and staffing.** The industry has high employee turnover, especially among store managers. Many entry-level employees are paid at or near state minimum wages, so significant minimum-wage increases or unionization could raise costs that the everyday-low-price model makes hard to pass on. - **Tax credit expiry.** The Work Opportunity Tax Credit, from which the company has drawn a significant tax benefit, expired for employees hired after December 31, 2025. Unless it is renewed, the 10-K expects a significant negative effect on future earnings per share. - **Supply chain and suppliers.** Disruptions at distribution centers, ports or carriers, or higher fuel and freight costs, can raise costs and cut in-stock levels. Supplier concentration and supplier failures add further risk. - **Data security and technology.** The company handles card and customer data and depends on third-party systems. It is migrating applications to the cloud, replacing its finance and human-resources ERP and its inventory-replenishment system, and rolling out a new point-of-sale system, so breaches or implementation failures could disrupt operations and reporting. - **Leverage and credit ratings.** The company describes its debt leverage as increased and intends to keep an investment-grade rating, both of which limit flexibility. The revolving credit agreement requires a minimum fixed-charge coverage ratio and a maximum leverage ratio. In 2025 Moody's lowered its rating from Baa2 to Baa3, while both Moody's and S&P moved their outlooks from negative to stable. A downgrade would raise borrowing costs. - **Litigation and regulation.** The company faces a consolidated shareholder securities class action and related derivative suits (see Legal proceedings below). It is also exposed to large class-action and mass-arbitration claims and broad regulatory change, including product safety, wage, tax and SNAP eligibility rules. - **Seasonality and weather.** The fourth quarter, which includes Christmas, is usually the most profitable, so weak holiday sales or bad weather can leave the company with seasonal inventory to mark down. Natural disasters and extreme weather can close stores and distribution centers. - **Key personnel.** The 10-K stresses executive succession planning and the ability to carry out senior leadership transitions. In March 2026 the board approved a CEO succession, with Todd Vasos to be succeeded by Jerry W. "JJ" Fleeman, Jr., expected effective January 1, 2027 (Form 8-K, accession 0001104659-26-033643). ## Management's discussion — fiscal 2025 *From the fiscal 2025 Form 10-K, accession 0001104659-26-032325. Capital expenditure and fourth-quarter figures are from the fourth-quarter earnings release, accession 0001104659-26-026697.* Fiscal 2025 was a margin-recovery year. Net sales rose 5.2% to $42.72 billion. Same-store sales rose 3.0%, from a 1.6% increase in customer traffic and a 1.4% increase in average transaction amount, and grew in all four categories. Seasonal (+6.2%) and home products (+6.7%) outgrew consumables (+5.0%), giving a slight improvement in sales mix after 2024, when only consumables grew. Profitability improved sharply: - **Gross margin** rose 107 basis points to 30.7% of sales, mainly from lower shrink, higher inventory markups and lower inventory damages, partly offset by a larger LIFO provision. - **SG&A** was 25.5% of sales, up 13 basis points. Higher incentive compensation and repairs and maintenance outweighed lower impairment charges; fiscal 2024 had carried $214.2 million of fourth-quarter impairments from a store-portfolio review. - **Operating profit** rose 28.6% to $2.20 billion, an operating margin of 5.16% against 4.22% in fiscal 2024. - **Interest expense, net** fell $43.8 million to $230.6 million as debt was repaid. - **The effective tax rate** rose to 23.0% from 21.8%, reflecting a higher state rate, the Pillar Two minimum tax and a smaller benefit from jobs-based credits. - **Net income** rose 34.4% to $1.51 billion, and diluted EPS rose 34.1% to $6.85. Fourth-quarter fiscal 2025 same-store sales rose 4.3%, and diluted EPS was $1.93 against $0.87 a year earlier, when charges from the store-portfolio review cut EPS by about $0.81. **Stores.** In fiscal 2025 the company opened 589 stores, closed 290 (including the portfolio-review closures) and ended the year with 20,893 stores. It remodeled 2,000 stores through Project Renovate and 2,254 through Project Elevate, and relocated 47. Average sales per square foot rose to $270 from $263, and inventory turnover improved to 4.5 times from 4.1. **Cash flow and balance sheet.** Operating cash flow rose $638.4 million to $3.6 billion. Higher earnings and working capital helped, as merchandise inventories fell 6% (7.0% per store) on inventory-reduction efforts and fewer core SKUs. Capital expenditures were $1.2 billion. The company used the cash to deleverage, with $1.7 billion of long-term debt repayments: - $500.0 million of 4.15% notes due November 2025, redeemed in April 2025. - $600.0 million of 3.875% notes due April 2027, redeemed in September 2025. - $550.0 million of 4.625% notes due November 2027, redeemed in December 2025. It paid $519.5 million of dividends ($0.59 per quarter) and repurchased no shares; a March 2025 credit-agreement amendment restricted repurchases during a covenant-relief period that ran through January 30, 2026. At year-end total debt was $4.6 billion, mostly senior notes. The $2.375 billion revolving facility, which matures September 3, 2029, was undrawn, and the commercial paper program (up to $2.0 billion) had nothing outstanding on the consolidated balance sheet. The repurchase authorization had about $1.38 billion remaining. **Fiscal 2026 plan (as of the 10-K).** The company planned about 4,730 real estate projects: about 450 new U.S. stores, about 10 in Mexico, about 2,000 Project Renovate and 2,250 Project Elevate remodels, and about 20 relocations. It planned capital expenditures of $1.4 billion to $1.5 billion and deliberately shifted toward remodels and away from new-store growth. Its long-term financial framework, introduced March 13, 2025, targets annual net sales growth of about 3.5%–4%, same-store sales growth of about 2%–3%, diluted EPS growth of 10% or more, about 2% new-unit growth, capital expenditures of about 3% of sales, and an operating margin of about 6%–7% beginning in 2028/2029. ## Current quarter — second quarter of fiscal 2026 *From the Form 10-Q for the quarter ended July 31, 2026, accession 0001104659-26-101932, and the second-quarter earnings release, accession 0001104659-26-101918. The guidance history uses the fourth-quarter (0001104659-26-026697) and first-quarter (0001104659-26-069198) releases.* **Results.** In the 13 weeks ended July 31, 2026: - **Sales.** Net sales rose 5.2% to $11.29 billion. Same-store sales rose 3.5%, from a 2.0% rise in customer traffic and a 1.5% rise in average transaction amount; higher average retail prices outweighed fewer items per transaction. Every category grew. Seasonal rose 7.4% to $1.19 billion, consumables 5.0% to $9.26 billion, home products 4.8% to $536.6 million and apparel 4.5% to $303.1 million. The company says non-consumables have now outpaced consumables in same-store sales growth for six consecutive quarters, and the release notes a fifth consecutive quarter of traffic growth. - **Gross margin** rose 127 basis points to 32.6%. The drivers were tariff refunds, a lower LIFO provision ($16.8 million against $62.3 million) and lower distribution costs, partly offset by more markdowns and higher transportation costs. The company estimates the tariff refunds added about 81 basis points of gross margin after it reinvested part of them in prices. - **SG&A** was flat at 25.8% of sales. Higher depreciation and amortization was offset by lower rent as a share of sales. - **Operating profit** rose 29.2% to $769.2 million, a 6.81% margin against 5.55%. Tariff refunds added an estimated 66 basis points to that margin after reinvestment. - **Interest expense, net** fell $14.8 million to $42.9 million on lower average borrowings. - **The effective tax rate** rose to 24.2% from 23.5%, mainly because federal tax credits have expired. - **Earnings.** Net income rose 33.8% to $550.3 million. Diluted EPS rose 33.3% to $2.48 and includes an estimated benefit of about $0.25 from tariff refunds after reinvestment. **First half.** For the 26 weeks: - **Sales.** Net sales rose 4.3% to $22.08 billion, with same-store sales up 2.7%. First-quarter same-store sales had risen 2.0%, in a quarter for which the company cited the impact of severe winter weather and higher fuel costs. - **Margins.** Gross margin rose 97 basis points to 32.1%, of which about 41 basis points came from tariff refunds. SG&A rose 13 basis points to 25.7%. - **Earnings.** Operating profit rose 20.2% to $1.41 billion, net income rose 23.8% to $994.4 million, and diluted EPS rose 23.4% to $4.49. **Tariff refunds.** After the Supreme Court's February 2026 IEEPA ruling, the company began receiving cash refunds of IEEPA tariffs it had paid. It received the majority of the refunds it expects during the second quarter and put a substantial portion back into lower prices and targeted promotions. Management says tariff rates on both direct imports and domestic purchases did not materially affect second-quarter results; separately, it does not expect tariff refunds, after related reinvestments, to have a material effect on second-half results. **Cost pressures.** Fuel costs were significantly higher in the quarter, and management expects that to continue for an uncertain period. Shrink has significantly improved from earlier elevated levels; damages remain elevated, though they improved in the quarter. The expiry of the Work Opportunity Tax Credit is raising the tax rate and will keep doing so unless the credit is reauthorized. **Store activity.** In the second quarter the company opened 126 stores (one in Mexico), remodeled 665 stores through Project Renovate and 711 through Project Elevate, relocated 5 and closed 33. In the first half it opened 321 stores and closed 66, against 208 closures in the first half of fiscal 2025, ending at 21,148 stores and 161.5 million square feet of selling space. It operated 179 standalone pOpshelf stores. The first phase of a new ERP system, the consolidated financial reporting platform, went live in the quarter, with further phases planned through 2027. **Cash flow and balance sheet.** First-half operating cash flow was $1.50 billion, $318.2 million lower than a year earlier even though net income rose $191.1 million. The largest working-capital movements were: - Merchandise inventories used $249.0 million, after providing $44.7 million a year earlier. - Prepaid expenses and other current assets used $169.4 million, mainly from higher vendor receivables, against $25.7 million a year earlier. - Income taxes used $140.9 million, against a $46.6 million source a year earlier, reflecting the amount accrued and the timing of payments; cash income taxes paid were $382.3 million, against $175.0 million. Accounts payable partly offset these, providing $275.5 million against $111.2 million. Inventories were $6.55 billion at July 31, 2026, up 3% in total but down 2.7% per store from a year earlier, and inventory turnover improved to 4.6 times from 4.3. Capital expenditures were $758.5 million, of which $414.5 million went to existing-store remodels and upgrades. Cash was $1.59 billion. Total debt was $4.57 billion, mostly senior notes, with no revolver or commercial paper borrowings outstanding. Senior unsecured ratings were Baa3 at Moody's and BBB at S&P, both with stable outlooks. The company paid $260.3 million in dividends in the first half and repurchased no shares. It said it intends to resume buybacks under its $1.38 billion remaining authorization in the second half of fiscal 2026, for the first time since 2022. **Guidance.** With second-quarter results the company raised its fiscal 2026 outlook for the second time: - **Net sales growth:** about 4.0%–4.3%, raised from 3.7%–4.2%, which had been unchanged since March. - **Same-store sales growth:** about 2.5%–2.9%, raised from 2.2%–2.7%. - **Diluted EPS:** about $7.80–$8.00, raised from $7.20–$7.45 in June, which had itself been raised from the initial $7.10–$7.35 in March. The new range includes the roughly $0.25 second-quarter tariff-refund benefit and assumes an effective tax rate of about 24.5%. The March guidance had assumed about a $0.13 drag from the expiry of the Work Opportunity Tax Credit. - **Share repurchases:** up to $700 million. The March and June guidance had assumed none. - **Capital expenditures:** unchanged at $1.4 billion–$1.5 billion, with the plan of about 4,730 real estate projects reiterated. **Legal proceedings.** The main matter is a consolidated shareholder securities class action in the U.S. District Court for the Middle District of Tennessee (*Washtenaw County Employees' Retirement System v. Dollar General Corporation*). It alleges that the company and certain current and former officers misrepresented how store labor, inventory, pricing and other practices affected results, over a putative class period of May 28, 2020 to August 28, 2024. The court dismissed the second amended complaint without prejudice in June 2025, then granted leave to amend on March 24, 2026. Defendants moved to dismiss the third amended complaint on April 21, 2026, and briefing was completed May 29, 2026. Related federal and Tennessee state derivative suits remain stayed; those stays were extended on April 22 and April 23, 2026. The company says it cannot estimate the potential loss in the securities case, and that the case could be material if its defense fails. ## Subsequent events *From the Form 10-Q, accession 0001104659-26-101932 (Note 9), the second-quarter earnings release, accession 0001104659-26-101918, and Form 8-K, accession 0001104659-26-102689.* The 10-Q contains no separate subsequent-events note, and it discloses no acquisitions, divestitures, new borrowings or debt issuances after the quarter ended July 31, 2026. The post-quarter items it and the related current reports disclose are: - **Dividend.** On August 26, 2026 the board declared a quarterly dividend of $0.59 per share, payable by October 20, 2026. - **Raised guidance and planned buybacks.** On August 27, 2026, with second-quarter results, the company raised its fiscal 2026 guidance and announced plans for share repurchases of up to $700 million in the second half of fiscal 2026 (detailed above). - **General Counsel retirement.** On August 25, 2026, General Counsel Rhonda M. Taylor said she intends to retire; she is expected to move to a senior advisory role on December 7, 2026.