Wednesday, Credit Suisse initiated coverage of Dollar General Corp. (DG) stock with a Neutral rating and a price target of $25.
Analyst Roller noted that led by retail veteran CEO Richard Dreiling, Dollar General has staged a remarkable turnaround with initiatives centered around improving store standards, category/space management, customized store hours, improving real estate processes, and reducing shrink.
The analyst believes that certain efforts, such as category management and improved store standards, have staying power to lead to future sales outperformance. However, other initiatives are now complete. For example, the analyst estimates that store hour customization led to a 3% comparable-store sales boost in late 2008 and early 2009.
The analyst said that shelf height initiative turning to more difficult discretionary products. Now that Dollar General has completed its increase in shelf height in most consumables areas, it is switching to discretionary areas like home goods. Based on more volatile and generally weaker sales trends in these categories, the analyst believes this carries a greater degree of risk.
The analyst added that gas price headwind in fourth quarter of 2009 and first half of 2010. Year-over-year changes in gas prices correlate more negatively with Dollar General's same-store sales than any other broadline retailer in the analyst's coverage. Starting last month, gas prices turned from deflationary to inflationary on a year-over-year basis.
Currently, DG is down $0.10 or 0.44% and trading at $22.79.
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