Costco vs. Dollar General: Which Discount Retailer Is the Better Buy?

Costco Wholesale Corporation COST and Dollar General Corporation DG stand out prominently in the Retail–Discount Stores industry. Costco boasts a substantial market capitalization of approximately $426.5 billion, operating on a membership-based warehouse model that sells goods at discounted prices. The company manages a network of 923 warehouses globally, including 633 in the United States.In contrast, Dollar General has a market capitalization of around $31.9 billion and operates a vast network of more than 20,000 stores across rural, suburban and urban areas. Known for its commitment to everyday low prices and essential household items, Dollar General has carved out a niche as a preferred shopping destination for budget-conscious consumers.With consumer spending shifting and economic crosscurrents reshaping shopping behavior, the key question for investors is which discount retailer is better positioned to deliver stronger returns from here.The Case for CostcoCostco’s resilient business model, built around its membership-based structure, remains a major growth driver. High membership renewal rates — 92.2% in the United States and Canada, and 89.7% globally — combined with efficient supply-chain operations and bulk purchasing power, allow Costco to offer competitive pricing that keeps customers loyal. This robust model has enabled Costco to thrive, even during economic downturns.Members pay an annual fee for access to Costco’s warehouses, where they enjoy significant discounts on a wide range of products. This structure not only ensures a reliable revenue stream but also fosters a sense of value and exclusivity. In the first quarter of fiscal 2026, membership fee income rose 14% year over year. The company ended the quarter with 81.4 million paid household members, marking a 5.2% increase year over year.Costco continuously adapts to market trends and consumer preferences. The company regularly updates its product offerings to include a mix of everyday essentials and unique, high-demand items. A key pillar of this strategy is the Kirkland Signature private-label brand. Through market analysis and tailored offerings, Costco has expanded its presence, both domestically and internationally. In fiscal 2026, the company plans to open 28 new warehouses — 20 in the United States, five in Canada and three in other international markets. It aims for 30 or more annual openings in subsequent years.Costco’s strategic investments in technology and logistics are strengthening its multi-channel ecosystem. The company’s digital initiatives have improved member engagement and operational efficiency, combining online convenience with the effectiveness of its warehouse model. The company’s same-day delivery offering is powered by Instacart, Uber Eats and DoorDash. Digitally enabled comparable sales in December surged 18.9%. This follows gains of 16.6% registered in both November and October, reflecting sustained strength in Costco’s online sales.That said, some challenges linger. Persistent inflation, soft consumer spending and stiff competition could weigh on Costco’s performance. Moreover, currency volatility and potential tariff-related cost pressures may hurt margins.The Case for Dollar GeneralDollar General has been gaining market share, supported by its resilient product mix, strategic focus on value and real estate expansion. The company’s “back-to-basics” initiative has strengthened its operational foundation, reinforcing a model that tends to hold up when consumer budgets are pressured. This positioning helps sustain customer traffic and broaden the shopper base, including increased engagement from higher-income households seeking everyday value.The company’s growth is further supported by a disciplined and aggressive real estate strategy with targeted remodels to enhance productivity. In fiscal 2026, management plans to execute about 4,730 real estate projects, including 450 new store openings in the United States, roughly 10 new stores in Mexico, 2,000 Project Renovate remodels and 2,250 Project Elevate remodels. These multi-faceted initiatives are designed to optimize merchandise assortments and refresh mature locations, helping sustain sales momentum. With nearly 11,000 additional expansion opportunities identified in the United States, Dollar General maintains a long runway for profitable growth.Dollar General has made meaningful progress in reducing shrink and improving inventory markups, supporting a gradual recovery in margins. Through tighter inventory controls and improved forecasting, the company can better balance in-stock availability with profitability. Importantly, Dollar General continues to drive traffic and same-store sales through balanced demand across its product assortment. While consumables remain a core traffic driver, discretionary categories — including home, seasonal merchandise and apparel — are also contributing, reflecting effective merchandising decisions and improved use of store space.The company is also expanding its omnichannel capabilities to enhance convenience and extend its value proposition. DG is advancing its retail strategy by expanding myDG Delivery to improve shopping speed. The same-day delivery service, available through the DG app and website, leverages Dollar General’s vast network of stores to bring faster access to everyday essentials, particularly in rural communities that have long faced limited options. The service is now available at more than 17,000 stores, with about 75% of the population residing within five miles of a Dollar General location.This focus on speed is complemented by strategic partnerships with major delivery platforms like DoorDash, available in more than 18,000 stores, and Uber Eats, serving more than 17,000 stores. By integrating these services, Dollar General ensures that convenience is accessible to millions of shoppers. As digital engagement increases, these initiatives are helping drive incremental traffic, improve basket size and strengthen customer loyalty.COST vs. DG: How Do Estimates Stack Up?The Zacks Consensus Estimate for Costco’s current financial-year sales and earnings per share implies year-over-year growth of 7.7% and 11.7%, respectively. For the next fiscal year, the consensus estimate indicates a 7.3% rise in sales and 9.2% growth in earnings. Over the past 60 days, the Zacks Consensus Estimate for the current and next fiscal year has risen by 12 cents and 18 cents, respectively. Image Source: Zacks Investment ResearchThe Zacks Consensus Estimate for Dollar General’s current financial-year sales and earnings per share calls for year-over-year growth of 4.8% and 9.6%, respectively. For the next fiscal year, the consensus estimate indicates a 4.1% rise in sales and 9.1% growth in earnings. Over the past 60 days, the Zacks Consensus Estimate for the current and next fiscal year has risen by 34 cents and 39 cents, respectively.  Image Source: Zacks Investment ResearchCOST vs. DG: A Look at Past-Year Stock PerformanceWhile operating in the same industry, Costco and Dollar General have seen markedly different stock performance. Over the past year, Costco shares have fallen 1.9%, whereas Dollar General has surged 101%. Image Source: Zacks Investment ResearchCOST vs. DG: A Peek Into Stock ValuationCostco trades at a forward price-to-earnings (P/E) ratio of 46.06, modestly below its one-year median of 48.48, but still at a premium to the industry average of 31.17. By contrast, Dollar General’s forward P/E of 20.5 sits above its own median of 16.57, yet remains below the broader industry level. Image Source: Zacks Investment ResearchCOST vs. DG: Which Stock Looks More Promising Now?While both Costco and Dollar General operate within the discount retail space, their investment narratives diverge meaningfully. Costco remains a best-in-class retailer with a robust membership model. However, its elevated valuation leaves limited room for further upside. On the other hand, Dollar General is emerging from an operational reset, supported by store upgrades, margin recovery efforts and an expanding omnichannel footprint that strengthens its value proposition. With its turnaround effort gaining traction and the stock offering a more attractive entry point, Dollar General appears to be the more compelling choice for investors at this stage. Costco carries a Zacks Rank #3 (Hold), while Dollar General currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.Beyond Nvidia: AI's Second Wave Is HereThe AI revolution has already minted millionaires. But the stocks everyone knows about aren't likely to keep delivering the biggest profits. Little-known AI firms tackling the world's biggest problems may be more lucrative in the coming months and years.SeeWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Dollar General Corporation (DG): Free Stock Analysis Report Costco Wholesale Corporation (COST): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks