Earnings Rewind: The Discount Comeback and the Rise of the Value Shopper

Earnings Rewind

Welcome back to Earnings Rewind, your weekly deep dive into the financial reports that moved the markets and the stories behind the numbers. After a brief break for the holidays, I am back to wrap up a pivotal week for the retail sector. This week, the spotlight turned to the discount and grocery giants, offering a fresh pulse check on the American consumer.

In focus are earnings from three retailers: one that rose on a big beat, one that steadied the ship with strategic pivots, and one that stumbled despite a profit beat. Let’s unpack the results from Dollar General, Dollar Tree, and Kroger.

Dollar General (DG): The Comeback Kid

Stock Performance: Dollar General was undoubtedly the star of the week. Following the earnings report on Thursday, shares skyrocketed, with the stock up 21% in the last 5 days. It wasn’t so long ago that the stock seemed like it was left for dead but it investors who stuck with it are up 62% in the past 12 months.

The Earnings: Dollar General delivered a beat and raise quarter that shattered expectations. The company reported Q3 earnings per share  of $1.28, crushing analyst forecasts of roughly $0.93. Net sales climbed 4.6% to $10.6 billion, driven by a solid 2.5% increase in same-store sales. Importantly, this growth was fueled entirely by customer traffic. 

• Pros: Their back to basics strategy is clearly paying dividends. The company saw broad-based growth across consumables, seasonal, home, and apparel. Most notably, they are gaining market share not just with their core low-income demographic, but are seeing disproportionate growth from households earning over $100,000. Management felt confident enough to raise full-year guidance for both sales and EPS, signaling that the momentum is expected to continue through the holiday season.

• Cons: While the traffic numbers were stellar, the average transaction amount was flat. This suggests that while more people are walking through the doors, they are tightly managing their basket size—a classic sign of a budget-constrained consumer. Additionally, the company noted that September was a soft month, reminding investors that the recovery is still subject to macroeconomic volatility.

Analyst Q&A Highlights: Questions focused heavily on the sustainability of the traffic gains and the health of the low-income consumer. Management confirmed that their core customer remains stretched, making trade-offs at the shelf and buying fewer items per trip. However, the retailer’s value valley (items at $1 or less) and strong execution in stocking shelves have successfully won back trust. Analysts also dug into the 2026 real estate plan, with management outlining an aggressive 4,730 projects, of which ~10% are new store openings and the rest remodels.

Dollar Tree (DLTR): Breaking the Buck, Finding the Floor

Stock Performance: Dollar Tree shares saw a healthy bump, rising 11% in the last 5 days. While not as explosive a rally as its rival, the market reacted positively to the company’s earnings beat and the validation of its multi-price strategy.

The Earnings: Dollar Tree reported Q3 EPS of $1.20 (adjusted $1.21), comfortably beating expectations of roughly $1.08. Net sales rose 9.4% to $4.75 billion. The Dollar Tree banner itself posted a respectable 4.2% comparable store sales increase. However, unlike Dollar General, this growth was driven entirely by a 4.5% increase in average ticket, while traffic dipped slightly by 0.3%.

The Takeaways:

• Pros: The multi-price strategy (selling items well above the traditional $1.25 price point) is the growth engine here. Management highlighted a record-breaking Halloween season, attributing the success to a wider assortment of higher-priced, higher-quality seasonal items. Gross margins also expanded by 40 basis points, aided by lower freight costs and improved mark-on.

• Cons: The negative traffic figure is the fly in the ointment. While management attributed some of this to the distraction of re-stickering items and broader retail softness, losing foot traffic is never ideal in a discount model. There were also concerns raised about potential tariff headwinds, though the company feels well-positioned to mitigate them.

Analyst Q&A Highlights: The call was dominated by questions regarding the multi-price rollout and the elasticity of customer demand. Management defended the traffic decline as a temporary blip caused by the operational heavy lifting of price changes. They also provided fascinating data on their changing demographic: 60% of their new customers in the last year have come from households earning over $100,000. This confirms that the trade-down phenomenon is real and Dollar Tree’s expanded assortment is capturing these wealthier, value-seeking shoppers.

Kroger (KR): Digital Transition Pains

Stock Performance: Kroger had a tougher week, with shares sliding approximately 7% in the past 5 days. despite beating earnings expectations. The market seemed spooked by a revenue miss alongside a lowering of the top end of identical sales excl. fuel and a messy headline operating loss caused by a massive impairment charge.

The Earnings: On an adjusted basis, Kroger delivered a solid quarter with EPS of $1.05, beating estimates of roughly $1.04. However, the headline number was an operating loss of $1.5 billion, triggered by a $2.6 billion non-cash impairment charge related to closing three automated fulfillment centers. Total revenue of $33.9 billion slightly missed the street’s expectation of $34.2 billion. Identical store sales excl. fuel only rose 2.6% against an estimate of 2.9% and gross margins came in at 22.8% versus an estimate of 23%.

The Takeaways:

• Pros: The digital business is a bright spot, with eCommerce sales jumping 17%. The strategic pivot to close underperforming automated centers and rely more on store-based fulfillment (and partners like Instacart and DoorDash) is expected to make the eCommerce division profitable by 2026—a major milestone. Pharmacy results were also strong, driven by GLP-1 drugs.

• Cons: The revenue miss and the slight deceleration in unit trends for discretionary categories weighed on sentiment. Investors are also wary of the Inflation Reduction Act headwinds expected to hit the pharmacy business in Q4 and 2026. The impairment charge, while non-cash, is a stark reminder that the capital-intensive bet on robotic warehouses didn’t pay off as planned.

Analyst Q&A Highlights: Discussion centered on the hybrid eCommerce model and the timeline for profitability. Management reassured analysts that the closure of the fulfillment centers would unlock $400 million in profitability improvements next year. There was also significant interest in the CEO search, with the Board expecting to name a successor in Q1 2026. On the macro front, Kroger noted a sharp bifurcation: premium shoppers are spending freely on organic and fresh food, while budget-conscious shoppers are pulling back significantly on discretionary general merchandise.

The Macro View: The Value-Seeking Economy

Looking at these three reports in aggregate tells a compelling story about the US consumer as we head into 2026. We’re all boned and everyone is trying to find ways to save money.

1. The Trade-Down is Acceleration: Both Dollar General and Dollar Tree reported significant influxes of higher-income shoppers (households earning $100k+). Wealthier consumers are not immune to economic uncertainty; they are actively seeking value and are willing to shop at discounters to find it. This might benefit companies like DG and DLTR but probably hurts more premium shop formats.

2. The Low-End is Stretched but Resilient: The core lower-income consumer is under pressure. They are visiting stores more often (Dollar General) but buying less per visit (smaller baskets) and focusing strictly on needs rather than wants. The softness in Kroger’s general merchandise and Dollar Tree’s negative traffic signal that discretionary spending is the first thing to go when budgets get tight.

3. Value Wins: In this environment, price perception is everything. Dollar General’s success with its $1 price point and Dollar Tree’s record Halloween show that consumers will spend, but only if they feel they are getting an undeniable deal.

As we move into the holiday season, the battle for the consumer’s wallet will be fought on the battleground of value. The retailers that can offer the best price-to-value equation—whether it’s a $1.25 ornament or a $5 Thanksgiving meal bundle—are the ones winning the week.

Thanks for joining us for this edition of Earnings Rewind. See you next week!

Disclaimer: This article is for informational purposes only and does not constitute financial or investment advice. The author is not a registered investment advisor. All investment strategies and investments involve risk of loss. Nothing contained in this article should be construed as investment advice. Any reference to an investment’s past or potential performance is not, and should not be construed as, a recommendation or as a guarantee of any specific outcome or profit. Please consult with a professional financial advisor before making any investment decisions.