Retailers Offer Goldman A Consumer Reality Check As One Thing Remains Clear

With just three weeks left in the second quarter and the summer season in full swing, a key question emerges: What’s the state of the consumer? 

Goldman Sachs analysts Kate McShane, Mark Jordan, and others published a note on Monday offering valuable insights into consumer trends following meetings with the management and investor relations of Dollar General, Dollar Tree, Five Below, Leslie’s, and Ollie’s Bargain Outlet. This comes as the first half of the year was marked by market turbulence, sliding sentiment, and escalating trade war tensions. 

McShane’s discussions with the management teams of DG, DLTR, FIVE, LESL, and OLLI painted a picture of cautious optimism. While companies are seeing pockets of resilience, persistent economic pressures, particularly elevated inflation and interest rates, continue to weigh heavily on discretionary spending, especially among the working poor segment. 

Longer-form takeaways from the analysts’ meetings with DG, DLTR, FIVE, LESL, and OLLI suggest that consumers are increasingly seeking value as retailers navigate ongoing challenges, including inflation, tariffs, and shifts in consumer spending behavior.

Dollar General

Non-consumables turned positive in 1Q: DG delivered growth in seasonal, home, and apparel, as noted on the 1Q earnings call. Per management, the trade-in customer helps as they have a higher propensity to put non-consumables items in the basket, and the company benefited from a later Easter. Additionally, DG saw benefits from an ongoing focus on its non-consumables strategy. The company called out strong sell-through of its brand partnerships, such as Dolly Parton. DG’s goal is to increase the NCI mix by at least 100 bps by the end of 2027 and to run closer to 20% over the next 5 years.

Promotional activity in FY25 is expected to be similar y/y: DG expects the promotional environment to be pretty neutral y/y for the full year. Per management, promotions were a bit higher in 1Q, while DG also delivered strong gross margin improvement. On the 1Q earnings call, DG noted that it took the opportunity to offer customers targeted price markdowns, while some promotional activity was related to store closures, which was a bit outsized compared to expectations for the remainder of the year.

Dollar Tree

Drivers behind gross margin in 2H: Management expects FY gross margin improvement of 50-75 bps despite the increased costs in 2Q. They clarified that the additional $70mn in COGS is a mix of tariff rates from different countries and products. In 1Q, they started to increase prices to mitigate tariffs: management gave the example of increasing prices on foil containers, which was a successful implementation as they were still able to deliver value at higher prices. However, many of their products are pre-ticketed with old prices, so they are investing an additional $40mn in SG&A labor to implement new sticker prices onto the products. The labor will also likely cost them an additional ~$50-60mn in 3Q and 4Q, but will not persist into 2026. However, management is optimistic that they will be able to sustain their margin as the price increases should recover these incremental costs.

1Q’s bigger basket was driven by multi-price: A significant driver of the larger basket this quarter was the multi-price segment, as its expanded assortment is resonating with the consumer. Management highlighted that multi-price combined with seasonality drove an extremely successful Easter, as customers buying multi priced items during the event multiplied sales.

Five Below

Merchandising changes will bring forward better assortment in 2H: FIVE has been actively working on their product pipeline since the latter part of last year, as they are making sure to emphasize on trends. They have currently pulled forward inventory receipts on trending products and will continue to build on the momentum they’ve seen in their successful worlds. Specifically, they called out success in collectibles, beauty, seasonal decor, and growth in Five Beyond (+MSD growth). Management noted that they are excited for the holiday season, and are capitalizing on opportunities they missed out on last year, such as stocking stuffers. They are also continuing to look at higher price points (5, 10, 15) to drive incremental sales while still providing value.

Real estate pipeline continuing to grow: Management sees further opportunity for new store growth in the future, and has been working on deals for 2026 and beyond. Given the recent improvement in their new store productivity, management is optimistic about their pipeline and their capability to deliver strong performance. They are also seeing a large amount of store dislocations in the retail environment, and have been able to get designation rights on those stores. Management provided the example of the Party City bankruptcy, as taking advantage of their dislocations led to FIVE’s expansion in the Pacific Northwest. They also emphasized that although they paused their store growth this year to focus on operations, they are still a growth company.

Leslie’s

Pro initiative: Management noted that the Pro initiative is focused on expanding service to professional customers that can be supported in any brick and mortar location, not just through Pro-stores. Management also highlighted some benefits of Pro initiative like improved inventory alignment (stocking right SKUs for pros), increased efficiency in serving pro customers, expanded awareness, and better inventory management.

Market share: The company noted that the post-covid environment has been hard to analyze due to limited market share data (especially in residential space) and unique industry dynamics. Management noted that there has been signs of consumer pressure and increased competition from big box retailers, however, the company is focusing on internal metrics like traffic, conversion, and Pro segment growth. The company noted on making efforts to regain market share by tracking customer behavior, enhancing product availability (moving some online-only items into stores), and expanding their loyalty program.

Technology: The company noted that the new technology has been rolled out to the first 100 stores, with plans to expand across full store network. Management highlighted that it supports a subscription model, where customers using the technology, especially the highest loyalty tier, would show significant higher average spend. While the exact financial impact is not yet measurable, the company noted that the early returns are considered strong and that the company is emphasizing prominent in-store placement to drive awareness and early adoption.

Ollie’s

Bankruptcies will provide them surplus inventory in the 2H and long term: Management noted that tariff related disruptions will bring inventory momentum in the 2H of the year; but outside of that, they are still seeing significant amounts of inventory from bankruptcies. Bankruptcies usually lead to three opportunities of inventory: 1) the initial abandoned product that was already manufactured and needs to be sold because other products are coming (~6 months of product), 2) products within the now bankrupt store (~9-12 month trail from bankruptcy), and 3) manufacturers needing new vendors (such as OLLI) to fill in the orders previously made by bankrupt stores. Ultimately, bankruptcies can lead to multiple years of products, as management provided the example of Bed Bath and Beyond leading to three years worth of closeout supply. Management highlighted that the last stage of bankruptcies can also lead to lasting relationships with suppliers, as it creates a cycle of them returning to Ollie’s to handle other excess inventory. These permanent relationships lead management to be firmly optimistic about the closeout supply, as they can resort to these manufacturers even if the retail environment recovers. Management noted that the closeout industry is currently worth $100bn, $40bn of which their categories are in, and OLLI does business in $2bn of that share, showcasing there is more market share for them to take.

Management continues to focus on investing in value and price: After the Big Lots bankruptcy, OLLI was able to take over many of their CPG deals, which have led to outperformances in their consumables category. Some investors have questioned whether adding consumables to the mix will be dilutive to margin, but management noted that it has not created a significant drag on margin so far; rather, seasonal events have more of an impact on margin as some discretionary seasonal items are margin rich. Management noted that even if consumables do create slight pressure on margin, they are more focused on investing in their relationships with CPG vendors. As their relationships become more meaningful, they will be able to negotiate more on price and take more market share, which will be accretive to earnings in the long run.

The analysts also provided a snapshot of hardlines/broadlines Q1 results of retailers under their stock coverage.

One thing remains clear: working-class and low-income consumers are still feeling financial pressure. On the positive side—though not highlighted in the report—falling gas prices have offered some modest relief. However, this is being offset by generationally high credit card interest rates and sticky food prices, which continue to strain household budgets.