Dollar General’s stock falls 32% after cut outlook prompted by a “cash-strapped” customer.

VaselineAugust 29, 2024

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Dollar General’s stock falls 32% after cut outlook prompted by a “cash-strapped” customer.

Shares of Dollar General ( DG ) fell 32% on Thursday after the discount retailer cut its outlook, indicating a customer under financial pressure. Thursday’s drop in the overall dollar was the largest on record.

Dollar General said it expects same-store sales growth for fiscal 2024 in the range of about 1.0% to 1.6%, compared with its previous expectation of 2.0% to 2.7%.

“We find it very strong that … this lower-level consumer continues to be very limited financially, especially in terms of her ability to feed her families and support her families,” he CEO Todd Vasos told analysts during the company’s earnings call. call Thursday morning.

Vasos said the last week of each of the quarter’s calendar months was “by far the weakest,” with customers flocking to a mix of 2,000 items still priced at $1 or less. Shoppers opted for more consumer goods and less seasonal, home and apparel items during the quarter.

“All these points would indicate that this is a cashless consumer, even more so than we saw in Q1,” he added.

Shares of rival Dollar Tree (DLTR), which is due to report quarterly results next week, also fell 10% in sympathy.

Dollar General has been going through a “Back to Basics” improvement plan led by Vasos, who returned to Dollar General last year.

However, Wall Street has grown impatient with the dollar store model as retail giants like Walmart ( WMT ) increase their market share with consumers in various income ranges.

On Thursday, CFRA Research Senior Equity Analyst Arun Sundaram cut his rating on Dollar General to Hold from Buy. Sundaram wrote, “Dollar store operators have lost some of their appeal for value and convenience as other retailers like Walmart expand their omnichannel offerings and have more leverage to keep prices low.”

The analyst expects Dollar General will have to spend more on store remodeling, price cuts, inventory reductions and wage increases, potentially squeezing margins.

Dollar General said quarterly gross profit as a percentage of net sales fell to 30 percent, compared to 31.1 percent in the same period last year, in part due to increased markdowns, increased inventory damage, a higher proportion of sales coming from the consumables category and increased the shrink.

The company posted adjusted earnings per share of $1.70, versus expectations of $1.79, on revenue of $10.21 billion, below Wall Street’s consensus estimate of $10.36 billion.

Dollar General shares are down more than 40% this year.