Dollar General shares fell 29% to a six-year low on Thursday after the discount retailer sharply cut its sales and profit forecasts for the year amid increasing competition for price-conscious shoppers in the U.S.
Dollar stores have come under pressure as deep-pocketed competitors like Walmart and Target have doubled their offerings of inexpensive everyday items.
The rapid rise of Temu, the e-commerce platform of the Chinese group PDD Holdings, also put a strain on business.
“(Dollar General’s results) show how difficult it is to maintain market share while Walmart leads in a slower growth environment,” said Michael Montani, an analyst at Evercore ISI.
Dollar General’s primary customer base, which accounts for approximately 60% of total revenue, consists of households with annual incomes of less than $35,000.
“While middle- and upper-income households are also looking for value, they do not report feeling the same pressure as low-income households as customers feel more pressure on their spending,” CEO Todd Vasos said in a conference call after the results were announced.
Dollar General now expects fiscal 2024 like-for-like sales to increase 1 to 1.6 percent (compared to previous forecast of 2 to 2.7 percent) and annual earnings per share to increase to $5.50 to $6.20 (compared to previous forecast of $6.80 to $7.55).
“Dollar store operators are clearly struggling in the current macroeconomic environment… To regain customer traffic, Dollar General will likely need to lower prices and increase its promotions,” said Arun Sundaram, an analyst at CFRA Research.
Dollar General shares hit their lowest point since June 2018 at $88.20 and were on track for their worst day ever.
Shares of competitor Dollar Tree lost about 9%.
Dollar General’s margins declined to 30 percent in the second quarter (compared to 31.1 percent a year earlier) due to increased markdowns, inventory damage and retail shrinkage, which includes losses due to theft or damage.
Management said increased promotional activity would put pressure on sales and margins throughout the year.
According to LSEG data, the company reported net sales of $10.21 billion in the three months ended August 2. The average analyst estimate was $10.37 billion.
Its earnings of $1.70 per share were also below estimates of $1.79.
