Dollar General Corporation (NYSE: DG) shares rose 5.99% to $130.14 after the discount retailer reported second-quarter diluted earnings per share of $2.48, beating analyst consensus of $2.01. The company also raised its full-year FY26 guidance and announced plans to resume share repurchases in the third quarter.

The company reported net sales of $11.3 billion for the quarter ended July 31, 2026, surpassing the sales estimate of $11.2 billion. This represents a 5.2% year-over-year increase from $10.7 billion in the same period last year. Diluted EPS grew 33.3% from $1.86 in Q2 FY25. The results included an estimated benefit of approximately $0.25 per share from tariff refunds after related reinvestments.

Revenue and Margin Dynamics

Same-store sales increased 3.5%, supported by a 2.0% rise in customer traffic and a 1.5% increase in average transaction amount. CEO Todd Vasos noted this marked the fifth consecutive quarter of customer traffic growth and the sixth consecutive quarter of positive comparable sales across all four merchandising categories.

Gross profit margin expanded by 127 basis points to 32.6% from 31.3% in the prior-year quarter. This improvement was primarily attributable to tariff refunds, a lower LIFO provision, and lower distribution costs, partially offset by increased markdowns and transportation costs. The company estimates the gross margin benefit from tariff refunds, after reinvestments, was approximately 81 basis points.

Selling, general, and administrative (SG&A) expenses remained essentially flat at 25.8% of net sales. Operating profit rose 29.2% to $769.2 million, reflecting the margin expansion against higher sales volume.

Strategic Initiatives and Store Expansion

Dollar General opened 125 new stores in the U.S. during Q2, part of a plan to open 450 stores in FY26. The company also opened one Mi Super Dollar General in Mexico, bringing its total Mexican footprint to 22 stores, with plans for approximately 10 new openings in Mexico this year.

Management highlighted strong performance in its "Value Valley" offering, which saw comp sales increases of more than 16%. The company expanded off-shelf displays for these items in more than 9,000 stores. The Value Valley assortment now includes more than 600 rotating items priced at $1 each. Additionally, delivery services contributed an estimated 40 basis points to comp sales growth, with management noting that digitally engaged customers are more than twice as productive as non-digitally engaged ones.

Tariff Refunds and Cost Headwinds

Dollar General confirmed it received the majority of expected IEEPA tariff refunds in the second quarter. The company stated it reinvested a portion of these refunds into lower prices for customers, including incremental SG&A spend on marketing and customer-facing initiatives. Management noted that SG&A leverage was essentially flat when excluding these reinvestments.

Looking ahead, the retailer warned that significantly higher fuel costs are expected to continue for an uncertain duration. CEO Todd Vasos noted that stubborn inflation and gas prices of $4 or more in some states continue to strain its core shopper. Customers are "watching every penny" and purchasing less per trip because they remain uncertain about the weeks ahead. This operational headwind adds complexity to the outlook despite the recent margin expansion driven by trade policy benefits.

What the Numbers Show

While operational execution drove top-line growth, the significant expansion in profitability was heavily influenced by non-recurring factors. The disclosed tariff refund benefit contributed roughly 81 basis points to gross margin and 66 basis points to operating margin. Additionally, the effective income tax rate increased to 24.2% from 23.5% last year, primarily due to expired federal tax credits. This suggests that while core retail metrics are stable, near-term earnings volatility remains linked to trade policy outcomes and tax regulation changes.

Balance Sheet and Capital Allocation

Cash and cash equivalents stood at $1.59 billion as of July 31, 2026, up from $1.28 billion a year earlier. Year-to-date cash flow from operations totaled $1.5 billion. Net interest expense decreased 25.7% to $42.9 million, aided by lower long-term obligations.

Total merchandise inventories remained flat at $6.6 billion compared to the prior year, though they decreased by 2.7% on an average per-store basis. Total assets grew to $32.17 billion from $31.65 billion a year ago.

The company declared a quarterly cash dividend of $0.59 per share. It also intends to repurchase shares under its existing program, with $1.4 billion remaining authorized. Management confirmed plans to resume repurchases in Q3, targeting up to $700 million in the second half, funded by cash on hand.

Updated Guidance

Dollar General raised its full-year FY26 outlook:

The new EPS guidance includes the estimated Q2 tariff refund benefit of $0.25 and assumes an effective tax rate of approximately 24.5%. The company does not anticipate material impact from tariff refunds in the second half of the fiscal year. Capital expenditures are expected to range between $1.4 billion and $1.5 billion.

Analysts had estimated FY26 GAAP EPS at $7.41. The new midpoint of $7.90 exceeds this estimate. The updated sales guidance of $44.433 billion to $44.562 billion also surpasses the analyst estimate of $44.426 billion.

Dollar General announced its intention to resume share buybacks in the third quarter. The company plans to repurchase up to $700 million of common stock during the second half of the year.

Capital Return Strategy

The Chief Financial Officer outlined the capital allocation strategy during a recent conference call. The firm intends to restart its share repurchase program starting in Q3.

The total value of shares targeted for buyback in H2 is capped at $700 million. This move signals management's confidence in cash flow generation and commitment to returning capital to shareholders.