According to Zhitong Finance, Bank of America has raised the rating of Dollar General (DG.US) from "underperform" to "buy," noting several early signs that the company's "return to basics" global strategy is working, including significantly improved inventory levels, with inventory per store down 7% year-on-year.

Additionally, Bank of America indicated that customer satisfaction surveys in Dollar General stores have increased by 900 basis points since the first quarter, meaning customers have responded positively to store execution, and added that opportunities for increased market share have also offset competitive pressures from Walmart (WMT.US).

However, Bank of America has lowered its EPS expectations for fiscal year 2026 from $6.90 to $6.15 to reflect spending pressures in the 2025 calendar year, including the return of incentive compensation (a drag of $0.40-0.50 per share) and wage growth. Bank of America also mentioned an intensified promotional environment, which may continue into 2025/26.

As of early November, Dollar General's same-store sales increased by 1.3%, exceeding Wall Street analysts' expectations. Q3 revenue grew by 5.1% year-on-year to $10.18 billion, slightly above market expectations. However, adjusted EPS was $0.89, below market expectations.

Dollar General currently expects full-year same-store sales to be between 1.1% and 1.4%, with the midpoint slightly lower than the previous growth forecast of 1% to 1.6%. The company now expects annual net sales to grow by 4.8% to 5.1%, while analysts' expectations are at 4.77%. Dollar General has also lowered the upper limit of its annual profit guidance and stated that the third-quarter results reflect a $32.7 million impact from hurricane-related expenses—the company expects annual EPS to be between $5.50 and $5.90, compared to the previous forecast range of $5.50 to $6.20.

However, Bank of America also noted that store closures by competitors should support the growth of Dollar General's market share and help offset competitive pressures from Walmart, including 970 Family Dollar stores from Dollar Tree (DLTR.US), as CVS Health (CVS.US) recently completed its store optimization plan.

Dollar general is also optimizing its distribution capabilities through the exit of temporary warehouse facilities. Bank of america expects to benefit from inventory adjustments and the "project enhancement" transformation plan for 2,000 full stores and 2,250 store locations, which will support the company's expected growth of 6-8% and 3-5% respectively.