Dollar General cut its sales and profit forecasts for the year on Thursday, blaming headwinds including weak consumer spending on nonessential purchases and increased theft.
Shares of Dollar General fell nearly 17% in premarket trading Thursday.
The challenges at the discount store are another sign of American consumers backing away from shopping as inflation remains well above the Fed’s 2% target.
“One of the main reasons for this is that Dollar General’s core customers are feeling the acute stress of the cost-of-living crisis,” Neil Saunders, retail analyst and managing director at GlobalData, said in a report Thursday.
“This has been exacerbated by cuts in SNAP payments as temporary pandemic benefits expire. As a result, low-income shoppers are cutting back on non-consumer and indulgent chain purchases in an effort to save money.” Unfortunately, this dynamic isn’t going to change anytime soon. As the financial resources will tighten during the second half of the year.”
The retailer now expects sales for the full year to rise between 1.3% to 3.3%, down from its previous forecast of an increase of 3.5% to 5%. It expects full-year earnings to fall 22% to 34% from its previous estimate, a steady decline to 8%.
The retailer said same-store sales (or sales in stores that have been open for at least a year) are expected to range from a decrease of about 1% to an increase of 1% for the year, compared to its previous forecast of a 1% to a 2% increase. He increases.
In the second quarter, Dollar General reported a 1% decline in same-store sales. It said weak customer traffic to its stores hurt sales in the period, along with budget-conscious shoppers backing away from higher-priced discretionary purchases such as household items and clothing in favor of lower-priced daily necessities.
The consumer price index increased by 3.2% for the year through July, adding pressure to bargain-hunting shoppers.
In addition, food stamp recipients began receiving benefits about $90 less per month, on average, starting in March, as the nationwide Pandemic Hunger Relief Program ended three years after it was approved by Congress.
Meanwhile, in the wake of Dick’s Sporting Goods sounding the alarm about shoplifting affecting its earnings this year, Dollar General also cited an increase in product theft, among other factors, hurting its earnings.
The company said that “an increase in inventory contraction is expected for the second half of 2023” factored into its downward guidance. Shrinkage is an industry term covering inventory losses caused by external theft, including organized retail crime, employee theft, human error, vendor fraud, damaged or mislabeled items, and other losses.
Retailers large and small say they are struggling to contain a surge in shop crime – from small shoplifting to large-scale organized shoplifting episodes that clear entire shelves of products. And Target warned earlier this year that it was poised to lose half a billion dollars due to rising rates of theft. It reported a high number of incidents of shoplifting and organized retail crime in its stores nationwide.
Meanwhile, it is not clear that shoplifting crime has become significantly more serious. Within the industry, at least one major player said the problem was exaggerated.