Dollar General plunges as core customers feel budget crunch

Dollar General Inc. shares slid after the discount retailer cut its full-year sales forecast, indicating that its turnaround efforts may not be enough to get customers to open their wallets.

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 shares fell as much as 26% when markets opened in New York, their biggest intraday loss on record.

The operator of more than 20,000 stores, Dollar General is working to improve performance under Chief Executive Officer Todd Vasos, who returned to the company last year after shares slumped under the previous leader. He 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.

While the company’s historical troubles likely mean “‘two years of easy comparisons’ as they move into ’25, we suspect that earnings and multiple impairment will likely persist for the foreseeable future,” Truist Securities analysts said in a note.

During the earnings season, retailers have said U.S. consumers are prioritizing essentials, and buying new, trendy products when they’re affordable. Amid high inflation and interest rates, they’re selective and remain on the sidelines for larger purchases and projects.

What Bloomberg Intelligence says:

Dollar General’s reduced forecasts for full-year revenue, same-store sales and diluted EPS may indicate its back-to-basics plan isn’t yet resonating enough with lower-income households that remain financially constrained. Progress in areas like inventory reduction is encouraging, but an acceleration in investments to improve value perception and in-store execution may still be needed.

– BI analysts Jennifer Bartashus and Jibril Lawal.

Lower-income consumers – dollar stores’ core customers – have pulled back spending and are feeling more strain than other groups. Other retailers like Walmart Inc. and Aldi Inc. have ramped up competition with low prices and deals.

Comparable sales rose 0.5% for the quarter, Dollar General said, below Wall Street analysts’ expectations. Earnings also came in below estimates. While the company is working to offer value, financial pressure on customers is hurting revenue. Sales of seasonal, home and apparel fell in the quarter, 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 U.S. 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.