Dollar General (DG) stock tumbled 32% on Thursday after the discount retailer cut its outlook, pointing to a financially pressured customer. Thursday’s drop in Dollar General was its biggest on record.
Dollar General said it expects fiscal 2024 same-store sales growth within the range of roughly 1.0%-1.6%, in comparison with its previous expectation within the range of two.0%-2.7%.
“It appears to us very strongly that … this lower-end consumer continues to be very much financially strapped, especially because it pertains to her ability to feed her families and support her families,” CEO Todd Vasos told analysts throughout the company’s earnings call on Thursday morning.
Vasos said the last week of every of the calendar months within the quarter was “the weakest by far,” with customers leaning into a mixture of the two,000 items still priced at $1 or below. Shoppers opted for more consumable goods and fewer seasonal, home, and apparel items throughout the quarter.
“All those points would indicate that it is a cash-strapped consumer, even greater than we saw in Q1,” he added.
Shares of rival Dollar Tree (DLTR), which is ready to report quarterly results next week, also fell 10% in sympathy.
Dollar General has been undergoing a “Back to Basics” improvement plan helmed by Vasos, who returned to Dollar General last 12 months.
Nevertheless, Wall Street has turn into impatient with the dollar store model as retail giants like Walmart (WMT) increase their market share with consumers across different income ranges.
On Thursday, CFRA Research senior equity analyst Arun Sundaram cut his rating on Dollar General to Hold from Buy. Sundaram wrote, “Dollar store operators have somewhat lost their appeal for value and convenience as other retailers like Walmart expand their omni-channel offerings and have more levers to maintain prices low.”
The analyst expects Dollar General might want to spend more on store remodels, price reductions, inventory markdowns, and wage increases, potentially squeezing margins.
Dollar General said quarterly gross profit as a percentage of net sales fell to 30% in comparison with 31.1% throughout the same period last 12 months due partially to increased markdowns, increased inventory damages, a greater proportion of sales coming from the consumables category, and increased shrink.
The corporate posted adjusted earnings per share of $1.70 versus expectations of $1.79, alongside revenue of $10.21 billion, below Wall Street’s consensus expectations for $10.36 billion.
Dollar General stock is down greater than 40% this 12 months.
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on X at @ines_ferre.
Read the most recent financial and business news from Yahoo Finance