New York
CNN
—
Dollar General slashed its sales and profit outlook for the year on Thursday, blaming headwinds including weaker consumer spending on non-essential purchases and increasing theft.
Dollar General shares tumbled nearly 17% in pre-market trading Thursday.
The discount store’s challenges are yet another sign of American consumers pulling back on shopping as inflation remains well above the Federal Reserve’s 2% target.
“One of the key reasons for this is because Dollar General’s core customers are feeling the acute pressure 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 came to an end. As a result, lower-income shoppers are cutting back on non-consumable and indulgent purchases from the chain in a bid to save money,” he said. “Unfortunately, this dynamic will not change any time soon as, if anything, finances will tighten over the second half of the year.”
The discount retailer now expects sales for the full year to rise between 1.3% to 3.3%, down from its previous forecast of a 3.5% to 5% increase. It expects full-year earnings to decline 22% to 34% from its previous estimate of a flat-to-8% decrease.
The retailer said its same-store sales (or sales at stores open at least a year) are expected to range from a decline of about 1% to an increase of 1% for the year, compared to its previous expectation of a 1% to 2%. increase.
For its second quarter, Dollar General logged a 1% drop in its same-store sales. It said weaker customer traffic to its stores hurt sales in the period, combined with budget-conscious shoppers pulling back on higher-priced discretionary purchases such as home items and clothing in favor of lower-priced everyday necessities.
The Consumer Price Index rose 3.2% for the year through July, adding pressure on shoppers looking for bargains.
In addition, food stamp recipients started to receive about $90 a month less in benefits, on average, starting in March, as a pandemic hunger relief program comes to an end nationwide three years after Congress approved it.
Meanwhile, close on the heels of Dick’s Sporting Goods sounding the alarm on store theft eating into its profit this year, Dollar General also flagged an increase in product theft, among other factors, hurting its profit.
The company said “an increase in expected inventory shrink for the second half of 2023” factored into its lower guidance. Shrink is an industry term encompassing inventory losses caused by external theft, including organized retail crime, employee theft, human errors, vendor fraud, damaged or mismarked items and other losses.
Retailers large and small say they are struggling to contain an escalation in store crimes — from petty shoplifting to organized sprees of large-scale theft that clear entire shelves of products. Target warned earlier this year that it was bracing to lose half a billion dollars because of rising theft. It reported a large number of incidents of shoplifting and organized retail crime in its stores nationwide.
At the same time, it’s not clear that store crime is growing significantly more serious. Within the industry, at least one major player has argued that the problem is being overhyped.
