Dollar General Forecast Shows Just How Much Shoppers Are Hurting

(Bloomberg) — In case there was any doubt, the lower-income US consumer is in full retreat.

Most Read from Bloomberg

Dollar General Corp.’s shares plunged the most since August 2016 after the discount retailer slashed its annual profit forecast, citing rising economic pressures on its shoppers.

The deteriorating outlook underscores the worsening picture for Dollar General’s customer base of lower-income shoppers, who like many US consumers are shifting their spending to basic goods and cutting back on discretionary purchases. Rival discount chain Dollar Tree Inc. cut its own profit outlook last week, and bigger retailers such as Target Corp. have warned of weakening sales trends.

“The macroeconomic environment is more challenging than the company had previously anticipated,” which is “having a significant impact on customers’ spending levels and behaviors,” Dollar General said in a statement Thursday as it reported earnings.

The company warned that adjusted earnings are likely to fall this year, abandoning its previous outlook for moderate gains. Same-store sales growth, a key metric for retailers, will rise by as little as 1% instead of the expansion of at least 3% that Dollar General had forecast in March.

During the current fiscal year, which ends in early 2024, earnings will be flat to down 8%, Dollar General said, ditching its previous forecast for growth of as much as 6%. Sales will climb no more than 5%, down a percentage point from the high end of the earlier outlook. The forecast assumes no share repurchases. The company had previously anticipated buybacks of about $500 million.

Dollar General plummeted as much as 18% in New York trading Thursday. The shares had already skidded 18% this year through Wednesday, while an S&P index of consumer-staples companies slipped 2.8%.

Competitive Pressures

The weaker outlook is probably a sign of tougher competition in addition to stressed consumers, Rupesh Parikh, an analyst at Oppenheimer & Co., said in a note to clients.

Walmart Inc. has been scoring big gains in US comparable sales in recent quarters, a sign that it’s grabbing market share. Dollar Tree is in the middle of a revamp led by Dollar General’s former chief executive officer.

“It appears to us that the top-line weakness is driven by both macro and competitive shifts,” Parikh said.

Dollar General, which has been aggressively adding new locations for years, pared its goal for new store openings to 990, down from 1,050 previously. That’s driven by fewer openings of the company’s new Popshelf concept, which is aimed at more affluent suburban customers. The Goodlettsville, Tennessee-based company has more than 19,000 locations and a particularly strong presence in rural areas.

In the fiscal first quarter, which ended in early May, Dollar General’s adjusted earnings fell to $2.34 a share, trailing the $2.40 average of analyst estimates compiled by Bloomberg. Sales climbed 6.8% to $9.34 billion. Analysts had projected $9.5 billion.