Dollar General shares tumble after it cuts forecasts, blaming a spending slump and theft

By Parija Kavilanz, CNN

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 about 14%, to about $135 a share, in midday 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.

Prior to discussing the company’s results In a call with analysts Thursday morning, Dollar General CEO Jeff Owen addressed what authorities called a racially motivated rampage last week that killed three people at a Dollar General store in Jacksonville, Florida.

“Before we discuss the quarter, I want to address the tragic event of last Saturday. We lost one member of the Dollar General family and two customers to a senseless and hate-filled act of violence in our store in Jacksonville, Florida,” said Owen. “We extend our deepest sympathies to their families and friends as well as to the greater Jacksonville community.”

“It is in times of tragedy when community matters more than ever. Right now, we are focused on providing support, counseling and resources to our teams and their loved ones,” he said. “We are evaluating how we can best support the local community during this difficult time…. We are appreciative of local law enforcement’s quick response in Jacksonville, and their continued support in protecting our associates, customers and communities every day across this country.”

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 uptick 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.

Dollar General’s CFO, Kelly Dilts, said during the call with analysts that the company expects “approximately $100 million of additional shrink headwind” to the business going forward.

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.

Owen said Dollar General is taking theft seriously. “With sales and shrink not where we want them to be, we have evolved how we are thinking about the rest of 2023,” he told analysts. To spur sales going into the all-important, year-end holiday shopping period, he said, Dollar General will offer more discounts, primarily in non-consumable products to lure more customers more frequently into its stores.

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