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Companies face the same macroeconomic challenges of higher interest rates and selective consumer spending. But that doesn't mean that every retailer is seeing earnings declines.

Year to date, Walmart (NYSE: WMT) is the best-performing component in theDow Jones Industrial Average . In its recent earnings release, it reported strong results and raised its full-year guidance.

Meanwhile, Dollar General (NYSE: DG) and Dollar Tree (NASDAQ: DLTR) both reported disappointing results and slashed their full-year guidance. Both consumer staples stocks are now hovering around five-year lows.

Here's how Walmart continues to outshine the competition, and why investors are so disappointed with Dollar General and Dollar Tree.

Walmart is still in growth mode

Just last year, Walmart was in the thick of margin compression and slowing growth as it fought inflationary pressures and supply chain challenges. But Walmart has turned its business around in a relatively short period -- forecasting record high earnings for the full fiscal year. Meanwhile, Dollar General and Dollar Tree are forecasting negative earnings growth.

Data sources: Walmart, Dollar General, Dollar Tree.

Low-income earners have been hit particularly hard by higher interest rates and inflation, so they are pulling back on spending even at dollar stores. Walmart has a different business model than dollar stores. Its product mix contains a wide variety of staples like groceries, household goods, and big-ticket discretionary goods. Walmart's goal is to offer the best price on all these goods while providing convenient services like free delivery on orders over $35 for Walmart+ subscribers. This blend of product mix and services helps Walmart appeal to a wide array of customers.

Walmart has done a masterful job retaining low-income consumer spending while also capturing higher-income customers looking for value. Like most retailers, Walmart has higher margins for discretionary goods. Dollar stores, by default, don't have big-ticket items, meaning they rely on high volumes.

Walmart CEO Doug McMillon said the following on the second-quarter fiscal 2025 earnings call in response to an analyst question on lower-income versus upper-income sales:

Walmart has been ramping capital expenditures to fund the buildout of Walmart+, store improvements, automation, and even investments in artificial intelligence. It is working to be more efficient from an operations standpoint while improving the in-store customer experience and convenience provided by curbside pickup and home delivery. The results show that these improvements are paying off and giving Walmart a leg up on the competition.

Walmart's diverse customer base and ability to go toe-to-toe with dollar stores on value has made it a winner even during a challenging environment.

Dollar General and Dollar Tree look dirt cheap

Even after slashing guidance, Dollar General and Dollar Tree have fallen so far that they are cheaper than Walmart based on earnings multiples. Assuming each company hits the midpoint of its full-year guidance, Walmart would have a price-to-earnings ratio of 32.3, compared to 13.9 for Dollar General and 11.8 for Dollar Tree.

Dollar General and Dollar Tree seem to be trading at dirt cheap bargain bin levels -- making them worth considering for investors looking to play a turnaround in lower-income spending. However, Walmart could still be the better long-term buy.

Long-term investors care more about what a company's earnings will be several years from now than where they are today. By catering to value-oriented customers and providing a new level of convenience, Walmart is entering its next growth phase. And given that Walmart+ is still relatively new, I think it will continue exceeding expectations with its in-store sales and online orders.

So, although Walmart isn't as cheap from a valuation standpoint, the quality of its earnings is much higher than that of Dollar General and Dollar Tree.

Walmart generates enough earnings to buy back stock, grow its dividend, and reinvest in the business. Walmart yields just 1.1%, which is too low to be considered a worthy passive income source. But Walmart's most recent dividend raise was 9%, and there's reason to believe we could see significant raises going forward as well.

Meanwhile, Dollar Tree doesn't pay a dividend, and Dollar General has nearly tripled its payout since it began its dividend program in 2015. Dollar General's dividend expense is less than half of projected earnings, implying that the dividend is easily affordable.

In this vein, Dollar General has an advantage over Dollar Tree and may appeal more to passive income investors with its 2.9% yield than Walmart, but Walmart is the better overall business.

Walmart deserves its premium valuation

Walmart is firing on all cylinders when so many of its peers are floundering, which is a big reason why the stock is on fire. Dollar Tree and Dollar General could be attractive turnaround plays, but some investors may want to wait for concrete signs of progress instead of simply hoping both companies can get back on track.

Walmart is an excellent example of the importance of brand power, an effective management team, and a willingness to make investments that can help accelerate future growth. Walmart may not be a cheap value stock anymore, but it is also a far better business than it used to be -- which is why Wall Street is putting such a premium on the stock right now.

Before you buy stock in Walmart, consider this: