Dollar General shares plunge 20% after gloomy sales forecast

A squeeze on budget shoppers has forced US discount retailer Dollar General to cut its sales forecast, sending its shares down 20 per cent in a sign of mounting pressure in the US economy.

The store chain known for its dollar-denominated goods on Thursday predicted net sales growth of 3.5-5 percent in 2023, up from a previous estimate of between 5.5-6 percent.

“Our sales guidance assumes that our customers will be under pressure for the rest of the year,” Chief Financial Officer Kelly Dilts said on a call with investors.

The weak outlook comes as US consumers are reeling from months of persistent inflation. Nearly a third of US adults reported they were either “just getting by” or “having a hard time getting by,” according to a late-2022 survey released by the Federal Reserve last week.

High inflation and low coronavirus pandemic savings have hit low-income consumers, the main customers of retailers like Dollar General. Rival Dollar Tree last week cut its profit outlook as it said customer spending was shifting from durable goods to lower-margin food.

Dollar General also said its core customers are spending more on low-margin essentials. At the same time, the company reported more customers with higher incomes through its doors.

Referring to the effects of changing customer income profiles, Dilts said, “While we have attracted and retained a significant number of customers in the higher income bracket in recent years, our guidance for this year is for significant business- does not accept profit.” ,

Dollar General reported net sales for the first quarter ended May 5 that rose 6.8 percent to $9.3 billion, missing analysts’ revenue expectations of $9.46 billion, as customer traffic declined and sales in apparel, home and Sales fell in seasonal categories. Economic pressures on the company included less-than-expected tax refunds from customers, a reduction in government food aid payments, and bad weather in March and April.

“We recognize that macro headwinds have had an adverse impact on our core customer,” said Chief Executive Jeff Owen. “We continue to see signs of increasing financial pressure on our customers as they look for affordable alternatives, including a reliance on private brands and items at or below the $1 price point.”

Same-store sales, which strips out the effects of new store openings, rose only 1.6 percent in the quarter. Same-store sales declined 2 percent in April, a weak trend that continued into May, Owen said on a call with investors. Dollar General cut capital spending plans for the fiscal year and will only open 990 new stores instead of the 1,050 previously planned.

The company expects same-store sales growth for the fiscal year to be in the range of about 1-2 percent, compared to the previous expectation of between 3 -3.5 percent. Earnings per share are expected to decline from no change to 8 percent this year, compared to previous guidance of 4-6 percent growth.