Rewrites throughout with background and details

By Neil J Kanatt

June 2 (Reuters) - Dollar General DG.N warned on Tuesday that its core customers remain under pressure from higher gas prices, prompting the discount retailer to hold its annual sales forecast steady, even as it raised its profit forecast on cost-control efforts.

Rising gasoline prices linked to the Iran war are pressuring the budgets of lower- to middle-income households who are already facing inflationary costs of living.

The company joined big-box retailers Walmart WMT.O and Target TGT.N and key rival Dollar Tree DLTR.O in flagging a cautious consumer spending environment.

Dollar General's finance chief Donny Lau said customers are also feeling the pinch from cuts to the U.S. government's Supplemental Nutrition Assistance Program (SNAP), which supports low-income families.

The strain is more acute in rural communities, where shoppers are limiting travel, cutting back on trips and making trade-offs to stretch their budgets, Lau added. Dollar General's core customers are primarily low- to moderate-income households earning about $35,000 a year or less.

However, Dollar General's dense, hyper-local store network positions it to capture these short-distance shopping trips, data firm Placer.ai said.

Dollar General, like Dollar Tree, is also benefiting from more higher-income consumers - earning over $100,000 - increasingly trading down and shopping at their stores.

Shares of the company fell about 1.4% in the afternoon as Dollar General maintained its annual same-store sales growth forecast of 2.2% to 2.7%.

The company also now expects fiscal 2026 earnings per share of $7.20 to $7.45, compared with its previous forecast of $7.10 to $7.35, excluding any tariff refunds.

Dollar General has been working to boost margins through improved supply chain productivity, store simplification and tighter inventory management.

"The results highlight continued operational discipline and margin improvement despite a challenging consumer backdrop," CFRA analyst Arun Sundaram said.

First-quarter net sales rose 3.4% to $10.79 billion. Net profit rose 12.4% to $2 per share, beating expectations of $1.89, according to data compiled by LSEG.