Bargain-hunting shoppers are boosting the fortunes of dollar-store chain Dollar General ( DG ).
On Thursday before market open, Dollar General beat the Street's lowly estimates across the board as it posted higher-than-expected earnings, revenue, and same-store sales growth.
"The results came in a little bit better than we had expected but also kind of exhibited that environment is still pretty tough," Morningstar analyst Noah Rohr told Yahoo Finance over the phone, "Management cited continued pressure from low-income customers."
Read more: What Trump's tariffs mean for the economy and your wallet
Dollar General CEO Todd Vasos told investors on a call that the company is "not anticipating improvement in the macro environment, particularly for our core customer."
Roughly 60% of Dollar General sales come from a household with an income of less than $35,000.
Vasos added, "In turn, we know our customers expect value and convenience more than ever."
For 2025, the company expects net sales to grow 3.4% to 4.4% and same-store sales to increase 1.2% to 2.2%. EPS is expected to come in between $5.10 and $5.80.
Shares of Dollar General jumped 7% during Thursday's trading session. Rival Dollar Tree also clocked a 7% gain.
Here's what Dollar General reported for its fiscal fourth quarter results, compared to expectations:
Dollar Tree is set to report its fiscal fourth quarter results on March 26 before market open.
Wall Street expects Dollar Tree to post revenue of $8.27 billion, alongside adjusted earnings of $2.21 and same-store growth of 1.5%. The company is also in the midst of a transition. On March 5, it announced Stewart Glendinning will replace current CFO Jeff Davis, who is leaving effective March 30.
In a note to clients, Telsey Advisory Group Joe Feldman said this could "result in modifications to the business strategy."
He added that "there are still several moving parts that cloud our visibility on 2025 and beyond." That includes the fate of the company's struggling Family Dollar business, its multi-price concept, as well as the "ongoing need to invest in the business" with aspects like "remodels and labor."
An uncertain consumer environment
UBS analyst Michael Lasser called it a "very uncertain" backdrop for the consumer, which makes Dollar General "appealing" since it offers essentials like grocery items.
CEO Todd Vasos said its consumers have been "negatively impacted by ongoing inflation," causing their financial situation to worsen over the past year. Its customers "only have enough money for basic essentials with some noting that they have had to sacrifice even on the necessities," he said.
Middle- and higher-income shoppers are also looking to save as their wallets get pinched.
"What has really become apparent leaving the fourth quarter and moving into the first quarter is the trade-down is back, both [from] the mid- and upper-end," Vasos told investors.
As tariffs take effect, that trend could continue.
The "lower-end consumer has been struggling," S&P Global Ratings retail director Matt Todd told Yahoo Finance. Should uncertainty continue and tariffs "send us into more of an economic slowdown," he expects "trade down [among consumers] to accelerate."
The impact of tariffs might be something even high-income consumers can't take on, S&P Global Ratings' Bea Chiem told Yahoo Finance. "There's a lot of signs that are pointing to a softer environment, and they really can't absorb much more inflation."
Spending cuts and tariffs could further complicate the picture, as dollar store chains have limited room to hike prices and have shoppers who depend on government programs. Overall, direct imports make up 41% to 43% of Dollar Tree's total retail value purchases, and China supplies the majority of those imports, per a company filing .
Dollar General's exposure to tariffs is much lower, as 80% of its sales are food items, most of which are nonperishable items made in the US, like canned soups, beans, and chips, Rohr said.
He added that the company only imports about 4% of its cost of sales, which likely comes predominantly from China.
"We believe we are well positioned to mitigate the impact in 2025. We were able to successfully mitigate the tariff impact in 2018 and 2019, though we did take retail price increases in some instances along with others across the industry," Vasos said on the earnings call.
BrookeDiPalma