Dive Brief:

• Dollar General Corp. Tuesday reported the first quarterly gains in gross margins in three years. The Q1 gross margin rose to 30.5% thanks to higher initial inventory markups and lower fuel prices that brought down transportation costs.

• Q1 net income increased 13.9% to $253.2 million, sales increased 8.8% to $4.9 billion, and same-store sales increased 3.7%, the retailer said.

• Dollar General continued its ambitious expansion plans with 219 new stores in Q1 so that it now operates 11,999 in 43 states.

Dive Insight:

Dollar General may have ultimately been shut out of a deal with Family Dollar, but the discount retailer appears to be doing just fine. Analysts say the retailer’s gross margin boost is unlikely to continue, but that the increase is a good sign after so many quarters with it down.

The dollar store category has been buffeted by price pressures when the economy was down, and has created some question about traffic with the economy improving. But with the right mix of merchandise and pricing, Dollar General’s profits will likely stay steady, with plenty of people still looking to save money on apparel, seasonal, and home goods, which, along with consumables like tobacco and snacks, were among the bestselling categories in the quarter.