Pressure on budget shoppers has forced US discount retailer Dollar General to cut its sales forecast, sending its shares down 20 percent in a sign of mounting pressure in the US economy.
The chain of stores known for its dollar-priced goods on Thursday forecast net sales growth of 3.5 to 5 percent in 2023, down from a previous estimate of between 5.5 and 6 percent.
“Our sales guidance assumes our customer will continue to be under pressure for the rest of the year,” Kelly Dilts, chief financial officer, said during a call with investors.
The weaker outlook comes as US consumers come under increasing pressure from months of sustained inflation. According to a survey conducted in late 2022 and released by the Federal Reserve last week, nearly one-third of American adults reported that they were either “getting by” or “having a hard time getting by.”
Higher inflation and depleted savings from the coronavirus pandemic have hit lower-income consumers, the main customers of retailers like Dollar General. Rival Dollar Tree lowered its earnings outlook last week 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 essential items. At the same time, the company reported more higher-income customers coming in.
“While we have attracted and retained a significant number of higher-income customers in recent years, our guidance does not assume a significant trade-in advantage for this year,” Dilts said, citing the effects of a shift in customer income profiles.
Dollar General reported that net sales in the first quarter, which ended May 5, increased 6.8 percent to $9.3 billion, beating analysts’ expectations for revenue of $9.46 billion as customer traffic declined and sales declined in apparel, home and seasonal categories. Economic barriers to the company included lower tax refunds than customers expected, reductions in government food aid payments, and bad weather in March and April.
“We believe the macroeconomic headwinds have had a disproportionate impact on our core customer,” said CEO Jeff Owen. “We continue to see signs of mounting financial pressure on our customers as they seek affordable options, including greater reliance on private label brands and items at or below $1.”
Same-store sales, which offset the effects of new store openings, rose only 1.6 percent in the quarter. Speaking to investors on the phone, Owen said same-store sales fell 2 percent in April, and the weak trend continued into May. Dollar General scrapped investment plans for the fiscal year and is opening only 990 new stores instead of the previously planned 1,050.
The company now expects same-store sales growth for the fiscal year to be between 1 and 2 percent, compared to previous expectations of between 3 and 3.5 percent. Earnings per diluted share are expected to range from flat to an 8 percent decline this year, compared to previous forecasts of 4-6 percent growth.
