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Dollar General (DG +13%) is heading sharply higher after reporting its largest EPS beat in four years. Revenue in Q1 (Apr) rose 5.3% yr/yr to $10.44 bln, which was also well ahead of expectations. Importantly, DG also raised FY25 revenue and comp guidance while also raising the lower end of FY25 EPS guidance to $5.20-5.80 from $5.10-5.80. DG said it was pleased with its start to the year, including strong same-store sales and EPS results.

• Given the huge EPS upside in Q1, it's reasonable to wonder why FY25 EPS guidance was not raised by more. However, DG cited tariff uncertainty and the possible impact on consumer behavior. On the positive side, DG expects it can mitigate a significant portion of the potential impact to its cost of goods from tariffs. However, consumer spending could be pressured by tariff-related price increases.
• Recall that in October 2023, Dollar General was able to lure former CEO Todd Vasos out of retirement to take his old job back. Mr. Vasos was CEO from June 2015 to November 2022, when the stock made a strong move. He has been revamping thousands of stores, aiming to make them cleaner and more convenient. The plan is to fully remodel around 2,000 additional stores this year. In addition, DG has been updating assortments, including adding produce.
• Same-store sales increased +2.4% in Q1, reflecting a +2.7% increase in average transaction and a -0.3% decrease in customer traffic. Comps included growth in consumables, seasonal, home products, and apparel categories. Comps were a nice improvement from +1.2% in Q4 (Jan), comprised of +2.3% in avg transaction and a -1.1% decrease in customer traffic. The traffic improvement, albeit modest, vs Q4 stands out to us.
• DG said that efforts to improve the customer experience contributed to market share gains in sales of both consumables and non-consumables, and drove growth with both its core customer and trade-in customers. Full year comp growth guidance was increased to +1.5-2.5% from +1.2-2.2% prior guidance. Gross margin improvement was a key reason for the big EPS upside. This was driven primarily by lower shrink and higher inventory markups; partially offset by increased markdowns.

Overall, this was a surprisingly good quarter for Dollar General and it bodes well for peer Dollar Tree (DLTR), which reports tomorrow in the pre-market, and Five Below (FIVE), which reports tomorrow after the close. The new CEO has now been in place close to two years and there seems to be good progress. Freshening up the stores and improving the merchandise is starting to pay dividends. Clearly, analysts were not looking for profitability to be this strong given the tariff situation, but DG seems to be managing it well. The stock chart also looks good. Since gapping lower last August, the stock has stabilized and has been trending nicely higher since mid-January.