BofA upgrades Dollar General to Buy, shares up
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BofA on Friday upgraded Dollar General (NYSE:DG) to Buy from Underperform, stating multiple early signs of the “back-to-basics” strategy working, including significantly improved inventory positioning, which is down 7% year-on-year per store.
Furthermore, Dollar General’s (NYSE:DG) in-store customer satisfaction surveys up 900 basis points since Q1, which implies customers responding to store execution, BofA said, adding that market share opportunities also offset Walmart (WMT) pressures.
The investment bank, however, lowered its F26/C25E EPS estimate to $6.15 from $6.90 to reflect 2025 expense pressures, including the return of incentive comp ($0.40-$0.50 EPS headwind), wage rate increases carrying into 2025.
It also mentions a heightened promotional environment, that could persist into 2025/F26.
Dollar General (DG) shares rose after a 5% improvement in sales in the third quarter eclipsed a miss on profits and a more conservative outlook for the remainder of the year.
BofA also noted that competitor store closures should support share gains and help offset Walmart (WMT) pressures, including 970 family Dollar Tree (DLTR) stores, CVS’s (CVS) recently completed store optimization program, and Walgreens (WBA) recently announced expanded footprint optimization program.
DG is also optimizing its distribution capacity through the exit of temporary warehouse facilities, and BofA expects benefits from inventory rightsizing and plans for 2K full store and 2.25K “Project Elevate” remodels, which should support comps given expected comp lifts of 6-8% and 3-5%, respectively.