Dollar General vs. Dollar Tree: Which Discount Stock Wins the Value Game?

Dollar General (DG) and Dollar Tree (DLTR) are navigating recent stock declines and macroeconomic pressures, with DG projecting a 2%-14% EPS rebound in FY25 after a 32% FY24 plunge, driven by rural expansion and Popshelf. DLTR, post-Family Dollar divestment, anticipates a 1%-11% EPS rise in FY25 following a 12% FY24 dip, banking on its multi-price "3.0 format" to attract higher-income customers and projecting stronger same-store sales growth (3%-5% vs. DG's 1.5%-2.5%). While DG trades at a lower forward P/E and offers a dividend, DLTR's strategic shift and clearer plans for broadening its consumer base position it as the more compelling investment.

Analysis

Both Dollar General (DG) and Dollar Tree (DLTR) are navigating strategic pivots following significant stock price declines of over 50% and 30% respectively over the past three years, driven by macroeconomic pressures, inflation, and inventory shrinkage. Dollar General's same-store sales growth slowed to 0.2% in fiscal 2023 before a modest recovery to 1.4% in fiscal 2024. For fiscal 2025, DG guides for 1.5% to 2.5% same-store sales growth and an EPS rebound of 2% to 14%, following a sharp 32% drop in the prior year, banking on its Popshelf concept and rural store optimization. In contrast, Dollar Tree is pursuing a more transformative strategy centered on the divestment of its underperforming Family Dollar banner. It projects stronger same-store sales growth of 3% to 5% for fiscal 2025, driven by the rollout of its multi-price "3.0 format" designed to attract a wider consumer base. Despite a 12% dip in fiscal 2024 adjusted EPS, DLTR guides for a 1% to 11% recovery. While DG trades at a slightly lower valuation of 20 times forward earnings with a 2.2% dividend yield, DLTR trades at 21 times forward earnings without a dividend, reflecting market anticipation of its strategic reset.

Key Decisions for Investors

• Investors should weigh Dollar Tree’s higher-growth potential, driven by its strategic divestment of Family Dollar and multi-price format pivot, against Dollar General's more incremental optimization strategy and its 2.2% dividend yield.
• Monitor the execution of Dollar Tree's "3.0 format" conversion, as its success in attracting higher-income consumers is critical to achieving its superior 3% to 5% same-store sales growth guidance.
• For Dollar General, key performance indicators include the margin impact from its operational improvements and the competitive traction of its Popshelf stores, which are crucial for justifying a recovery from its 32% EPS decline in fiscal 2024.
• Despite Dollar Tree's slightly higher forward P/E ratio, its clearer path to accelerated growth post-restructuring may present a more compelling value proposition for investors focused on capital appreciation over income.