From low-income to high-income groups are flocking to discount stores, and Dollar General in the United States has significantly raised its performance outlook

According to the Zhitong Finance APP, the discount retail giant Dollar General Corporation (DG.US) in the United States announced its performance data and outlook on Thursday, unexpectedly raising its full-year sales and profit forecasts significantly. This comes as the company bets on the consistent strong demand for discount essential goods across all income levels in the U.S., amid the pressure of Trump's tariff policies and concerns about market inflation. Benefiting from the strong performance report, the company's stock price rose about 6% in pre-market trading, and its stock has accumulated nearly a 47% increase year-to-date, significantly outperforming the S&P 500 index.

Generally speaking, during periods of economic slowdown or recession, the sales growth of discount retail stores (such as dollar stores) tends to outperform that of large retailers like Walmart, as budget-conscious consumers typically turn to these discount stores for affordable and value-for-money essentials.

It is noteworthy that about 80% of Dollar General's sales come from food and essential consumer goods, which reduces the company's reliance on imported products affected by the new U.S. tariff policies and mitigates the impact of economic slowdown on Dollar General. Unlike large retail giants like Walmart and Amazon that focus on both online and offline sales, Dollar General emphasizes "close to home, extremely cheap, and quick restocking" in its small discount convenience stores, highlighting the shopping theme of "small basket + high frequency" for essentials, primarily targeting low to middle-income, rural, and small-town families. In the current inflation/tariff environment, it has also clearly attracted higher-income "rational saving" customers.

As the global tariff policies led by the Trump administration have largely stabilized and concerns related to inflation have eased, U.S. consumer spending continues to show significant expansion. The retail performance data released this month and future outlooks are generally optimistic. Discount retailers, in particular, have performed exceptionally well as more consumers focus on saving money.

Although low-income consumers in the U.S. may struggle to afford some basic necessities, Dollar General stated earlier this year that its lower-priced product offerings are also attracting high-income consumers to its many retail stores.

It is understood that Walmart (WMT.US), a bellwether of the U.S. retail industry, is also continuously attracting wealthier customers seeking low-priced groceries. Walmart's management raised its full-year sales outlook guidance when it released its performance report earlier this month.

In its latest financial report, Dollar General indicated that it has incorporated "potential uncertainty factors related to consumer behavior" into its performance outlook considerations.

For the second fiscal quarter of fiscal year 2026 ending August 1, the company's same-store sales grew by 2.8%, exceeding Wall Street analysts' average expectation of a 2.5% increase, thanks to a continued rise in customer visits and spending per visit. The company's adjusted earnings per share for the second fiscal quarter were $1.86, significantly higher than the Wall Street average profit expectation of $1.57 per share.

The company currently expects its net sales for the full fiscal year 2026 to grow by 4.3% to 4.8%, up from the previous management's expectation of 3.7% to 4.7%. The same-store sales growth for this fiscal year is now expected to reach a maximum of 2.6%, higher than the previous upper limit of 2.5% Dollar General currently expects its earnings per share for the full fiscal year 2026 to be in the range of $5.80 to $6.30, significantly higher than the previous target outlook range set by the company's management, which was originally expected to be $5.20 to $5.80 per share. As a result, both annual sales and profits have been revised upward, and the revised performance outlook range is better than Wall Street's average expectations.

Morgan Stanley, a Wall Street financial giant, recently released a research report stating that many companies' performance guidance has generally exceeded expectations due to structural growth driven by the AI wave, the return of manufacturing to the U.S. due to tariffs, and still strong demand. In contrast, companies impacted by consumers cutting discretionary spending or rising costs have weaker prospects and performance guidance. The widespread divergence in performance guidance indicates that the stock market will present a situation of "some are happy, some are worried," and suggests that investment needs to focus more on the differences in industries and company fundamentals, especially for the consumer sector.

Morgan Stanley's analysis team strategically favors the consumer staples sector while relatively avoiding discretionary consumption. Analysts point out that when consumers tighten their wallets and spend more on necessities, the revenues of consumer goods and food and beverage companies are more secure; conversely, companies reliant on discretionary spending (such as durable goods and leisure consumption) will face more difficulties. Additionally, consumer staples companies benefit from slowing inflation—falling raw material costs help improve gross margins. These factors make consumer staples a defensive and resilient investment area in the current environment.

Morgan Stanley also specifically mentioned that research shows many companies are aware of the significant differences in health between "high-income vs. low-income" consumers. The high-income group is less affected by inflation, still has savings, and therefore maintains some spending power on non-essential consumption; in contrast, low-income consumers are more impacted by rising prices and the withdrawal of pandemic subsidies, forcing them to reduce discretionary spending and turn to cheaper alternatives. Therefore, Morgan Stanley stated that consumer demand is extremely polarized, with essentials showing steady growth while discretionary items continue to weaken. There is a divergence in consumption between high and low-income groups, but both high-income and middle-to-low-income groups prioritize purchasing essentials like food and daily necessities while cutting back on discretionary spending, which makes the sales of essential goods relatively secure and even allows for slight price increases