How Dollar General Turned Inventory Loss into Profit Powerhouse

DeFi_Dad_Jokes · 2026-01-12T18:40:23+00:00

Dollar General Corporation is addressing inventory shrinkage effectively, resulting in improved gross margins and sales growth despite reduced product offerings. With successful loss reduction strategies in place, DG's stock outperformed peers significantly, and analysts expect continued growth.

DeFi_Dad_Jokes

2026-01-12 18:40:23

Abstract generation in progress

Dollar General Corporation [DG] is rewriting the retail playbook, and it’s all thanks to tackling a problem that’s plagued retailers for years: shrink (inventory loss from theft and waste).

The Numbers Tell the Story

In Q3 fiscal 2025, DG’s gross margin hit 29.9%, jumping 107 basis points year-over-year. The real hero? A 90-basis-point shrink improvement in a single quarter—exceeding what management even forecasted internally.

Here’s what’s wild: this isn’t just a one-trick pony. The company discovered that loss reduction breakthroughs are happening everywhere, not just stores where self-checkout was removed. About 6,500 locations that never installed self-checkout still posted meaningful shrink reductions. That signals this improvement has staying power rather than being a temporary fix.

The Inventory Strategy Behind the Gains

DG didn’t just cross its fingers and hope. The company slashed SKU count by over 2,500 everyday items in the past two years and cut merchandise inventories 6.5% year-over-year to $6.7 billion. Yet despite tighter inventory management, same-store sales rose 2.5% in Q3, driven by 2.5% traffic growth. Translation: fewer products, more customers, stronger results.

What’s Next: Margin Room Still Expanding

Management guided for more shrink improvement in Q4 fiscal 2025, though at a slower pace given tougher year-over-year comparisons. Analysts project another 50 basis points of gross margin expansion in Q4 and 90 basis points for the full fiscal year.

How DG Stacks Up

Against peers Target Corporation [TGT] and Costco Wholesale Corporation [COST], DG’s stock has soared 87.3% over the past year—while Target dropped 26.7% and Costco fell 4.9%. At a forward P/E of 19.80, DG trades below the retail industry’s 29.44 average and significantly cheaper than Costco’s 42.22, though higher than Target’s 13.26.

The Zacks consensus expects DG’s current fiscal year to deliver 4.8% sales growth and 9.3% earnings growth, with similar momentum continuing next year. The key question: can this loss reduction improvement sustain itself, or will it fade like so many retail initiatives? Early signs suggest it’s durable—making profit room widening a long-term tailwind rather than a one-quarter wonder.

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