Dollar General's (DG) fiscal Q2 results provided "credible evidence" that its turnaround can be sustained, with healthier traffic, broader category growth and improved core margins supporting a bullish outlook, UBS Securities said in a report Friday.

Comparable sales rose 3.5%, driven by a 2% increase in traffic and a 1.5% rise in ticket. All four merchandising categories posted positive comparable sales for a sixth straight quarter, while underlying earnings remained strong even after excluding the benefit from tariff-related refunds.

The fiscal Q2 results point to "better execution," continued trade-in, particularly among the highest-income shoppers, a "healthier discretionary" mix, and ongoing supply-chain and shrink gains.

Dollar General also raised its fiscal 2026 outlook to net sales growth of 4% to 4.3%, same-store sales growth of 2.5% to 2.9% and earnings per share of $7.80 to $8. The revised EPS range compares with UBS's estimate of $7.95 and consensus of $7.54, according to the report.

The investment firm said Dollar General is entering fiscal 2027 with stronger "core earnings power" despite tougher comparisons and the absence of the one-time refund benefit.

UBS kept its $168 price target on the company, with a buy rating.

Shares of the company were down 2.7% in Friday afternoon trading.

Price: 122.51, Change: -3.39, Percent Change: -2.69