Dollar General Inc. shares plummeted the most on record after the discount retailer reduced its full-year sales forecast. Its chief executive officer said customers are cutting back on essential goods after years of rising costs for other expenditures such as rent and health care.
“Inflation has continued to negatively impact these households, with more than 60% claiming they have had to sacrifice on purchasing basic necessities,” CEO Todd Vasos said on a call with analysts.
Comparable sales will rise 1% to 1.6% for the year, the company said Thursday, down from the previous outlook for a 2% to 2.7% increase. Dollar General also cut its 2024 profit view.
The stock tumbled 32% on Thursday, the biggest drop since Dollar General went public in 2009. The decline adds to a nearly 9% decrease this year through Wednesday. Shares of competitor Dollar Tree Inc., which reports earnings next week, fell 10%.
The results cast doubt on the turnaround being led by Vasos, who returned to the company last year, and the health of some US shoppers. Dollar General, which operates more than 20,000 stores, caters to Americans in the lowest rung of the income ladder, with its core customer making less than $35,000 a year. Other discount chains, including Ollie’s Bargain Outlet Holdings and Big Lots Inc., have also posted disappointing results.
Dollar General and other discounters typically perform well during challenging economic periods when consumers look to stretch their budgets. As the economy has oscillated between growth and recession fears, the company has struggled to fend off competition from retailers that have been cutting prices and offering deals.
Vasos acknowledged that Walmart Inc., the largest US retailer, has been “doing a pretty nice job” in winning shoppers from other chains who are looking for deals after several years of high inflation boosted price tags across the consumer economy. Walmart breezed to another quarter of sales growth, topping Wall Street expectations.
Target Corp. and Best Buy Co., which cater to consumers with higher incomes than Dollar General, also posted solid results and impressed investors. Chains have said shoppers are prioritizing essentials, and buying new, trendy products when they’re affordable, but they’re being selective and remain on the sidelines for larger purchases and projects.
Still, the consumer outlook offered by Best Buy was far less dire than that of Dollar General, which reported seeing sales weakening at the end of each month in the last quarter as shoppers ran out of funds.
“We don’t believe anything in our data signals that customer behavior has changed in a way that would make us increasingly cautious,” Chief Executive Officer Corie Barry told analysts on a call Thursday after raising the chain’s earnings guidance.
Since returning, Vasos has vowed to boost results by focusing on labor hours, value products and the supply chain. The retailer is also simplifying operations by removing items and slowing new store openings.
Truist Securities analysts said in a note that the company’s weakness are likely to “persist for the foreseeable future.”
Comparable sales at Dollar General rose 0.5% last quarter, trailing analysts’ expectations. Earnings also came in below estimates. Sales of seasonal, home and apparel fell, and although traffic rose, shoppers spent less per trip. The company is also relying more on promotions, hurting profit.
Dollar General agreed last month to a companywide settlement with US safety regulators after years of controversy about its store conditions. It will pay $12 million in penalties and agreed to establish new safety protocols, hire more safety staff and reduce store inventory.
