UBS: Dollar General 'Bulking Up Its Troops'

In a report published Wednesday, UBS analyst Michael Lasser maintained a Buy rating on Dollar General Corp. DG, while raising the price target from $84 to $85. The analyst believes the visibility into the company's outlook is better than average. The company's Q1 results offer greater confidence regarding Dollar General's intermediate-term outlook. "Importantly, it has started off the year well with a 3.7 percent comp in the first quarter, which was better than many other retailers saw. Plus its gains came with 45 bps of gross margin expansion, reversing the declines that DG has seem for the last few years," Lasser said. The company expects to be able to sustain these results for some time. Therefore, the analyst believes that the stock offers a "stable growth story" at a "reasonable" valuation. Dollar General intends to roll out more labor across its stores through three phases. "This will be complemented by pushing more inventory out of the back room to the shelves, Plus, it's going to decrease the no. of stores that most district managers will be responsible for, providing more time for these key employees to spend with managers," the UBS report stated. The analyst expects this initiative to boost sales and gross margin. The company's inventory and labor investments are also expected to drive accelerated returns.