Dollar General Q3 2025: Traffic and Lower Shrink Drive Profit Surge

For investors watching the retail sector, Dollar General (DG) serves as a critical bellwether for the health of the value-conscious consumer. As the largest discount retailer in the United States by store count—operating over 20,900 locations—DG’s performance offers insights into how inflation and economic pressure are affecting household budgets.

In this post, we are going to dig into the company’s income statement for the third quarter of fiscal year 2025 (ended October 31, 2025) to see what the numbers tell us about the business’s health and the broader economic landscape. You can view the full 10-Q filing here.

To visualize how money moves through Dollar General’s business this quarter, we have generated the following flow diagram:

Traffic Drivers and Sales Growth

Dollar General delivered a solid top-line performance this quarter. Net sales rose 4.6% year-over-year to $10.65 billion. This growth was primarily driven by new store openings and a 2.5% increase in same-store sales.

What is particularly interesting about the same-store sales metric is its composition. The entire 2.5% increase came from customer traffic, while the average transaction amount remained flat. This suggests that while consumers aren't necessarily spending more per trip—likely due to budget constraints—more people are visiting the stores. In the discount retail world, driving foot traffic is often considered the hardest battle to win.

The business remains heavily weighted toward "Consumables" (everyday items like food, paper products, and cleaning supplies), which accounted for roughly 83% of total sales, or $8.8 billion. While these low-margin necessities drive traffic, DG also saw healthy growth in higher-margin categories, with Seasonal sales up 5.5% and Home Products up 5.4%.

A Turnaround in Profitability

The most striking aspect of this report is the significant improvement in profitability. Operating profit surged 31.5% to $425.9 million compared to the same period last year. Net income followed suit, jumping 43.8% to $282.7 million, resulting in diluted earnings per share (EPS) of $1.28.

This profit boost was largely fueled by gross margin expansion. Gross profit as a percentage of sales increased by 107 basis points to 29.9%. Management attributed this improvement to higher inventory markups and, notably, lower shrink.

Note: In retail, "shrink" refers to inventory loss due to theft, damage, or administrative errors. High shrink has been a plague on the retail industry recently, so seeing a reduction here is a positive signal that DG’s inventory management and security initiatives are gaining traction.

Financial Discipline and Risks

Despite the strong earnings, Dollar General is taking a conservative approach to capital allocation. The company did not repurchase any shares during the quarter and does not plan to do so for the remainder of the year. Instead, they are prioritizing financial flexibility and their investment-grade credit rating, evidenced by the early redemption of over $1 billion in senior notes throughout the year.

The filing also highlights the uncertain impact of tariffs. While current tariff rates haven't materially impacted results yet, the company flagged the dynamic tariff environment as a risk that could pressure customers' budgets or force price increases in the future. Additionally, the company's effective tax rate ticked up to 23.6%, driven primarily by the enactment of the Pillar Two global minimum tax.

Conclusion

Dollar General’s Q3 2025 results paint a picture of a retailer that is effectively navigating a challenging macroeconomic environment. By driving customer traffic and successfully combating inventory shrink, DG significantly expanded its margins and profitability.

However, the reliance on low-margin consumables and the pause on share buybacks suggest that management remains cautious. As competitors in the discount space vie for the same constrained consumer dollars, Dollar General’s ability to maintain its low-cost position while managing potential headwinds like tariffs will be key to sustaining this momentum.