A customer at a Dollar General store
Daniel Akker | Bloomberg | Getty Images
Dollar General Core customers are controlling spending amid a worse-than-expected macroeconomic situation, leading the discounter to downgrade its full-year outlook after a dismal earnings report on Thursday.
Shares of Dollar General fell about 16% in morning trading after the retailer missed top and bottom line estimates.
Here’s how Dollar General did in its first fiscal quarter compared to what Wall Street expected, based on an analyst survey by Refinitiv:
- Profit per share: $2.34 versus $2.38 expected
- Gain: $9.34 billion versus $9.46 billion expected
The company’s reported net income for the three-month period ended May 5 was $514.4 million, or $2.34 per share, compared to $552.7 million, or $2.41 per share, year-on-year earlier.
Sales rose to $9.3 billion, up nearly 7% from $8.8 billion a year earlier.
Same-store sales, a key industry metric, rose 1.6%, but the growth was half the 3.8% jump analysts had expected, according to StreetAccount. Growth was driven by strong consumer goods, but was offset by slowdowns in seasonal, household and apparel categories, which have higher margins than food.
In a press release, CEO Jeff Owen said the macroeconomic environment was “more challenging than expected, especially for our core consumer.” The company believes these headwinds are having a “significant impact” on the “spending levels and behavior” of its customers.
“We control what we can control and have made significant progress in improving our execution on multiple fronts,” he said.
The company lowered its full-year guidance for fiscal year 2023. It now expects net sales to grow between 3.5% and 5%, compared to previous growth of 5.5% to 6%. It expects same-store sales to increase by about 1% to 2%, compared to a previous range of 3% to 3.5%. Analysts had expected same-store sales to grow 3.4%, according to Street Account.
It now expects earnings per share in the range of flat to 8% lower than last year, compared to an earlier expectation of a 4% to 6% increase.
Analysts had expected earnings per share to rise 4.3%, according to Street Account.
Dollar General, the fastest growing retailer by number of stores, is optimistic about its outlook and has announced more store openings than any other retailer in 2022, according to Coresight Research, a retail-focused consulting firm. To open an additional 1,050 new stores by 2023, including a slew of new Popshelf stores, primarily selling discretionary items and targeting higher-income customers.
Dollar General is expanding its new Popshelf store concept. The store caters to more affluent suburban shoppers.
Dollar General
Dollar General is reversing the expansion. The company now expects to open 990 new stores in fiscal year 2023. It’s not immediately clear if only Popshelf stores were dropped from planned openings or if Dollar General’s eponymous banner will also have fewer new doors.
During the quarter Dollar General – like many of its clients – was also hit by sharp interest rate hikes. Interest expense rose 109.3% to $83 million in the quarter, compared to $39.7 million in the same period a year ago, which was driven by higher average borrowings and higher interest rates, the company said.
It saw its margins rise 0.3 percentage point, which it attributed to higher inventory markups and lower transportation costs. But the growth was offset by an increase in shrink, write-downs, inventory losses and more food sales than in discretionary categories.
By the end of the quarter, at cost, trade inventories were $7.3 billion, up 14.7% from $6.1 billion a year earlier on a store basis. The increase was driven by product cost inflation, the company said.
In addition to the financial woes, the company is also facing increasing pressure to improve working conditions for its employees from federal regulators, activists and staff. It has faced more than $21 million in fines from the federal Occupational Safety and Health Administration for a slew of safety hazards, including blocked emergency exits, blocked electrical outlets, and dangerous levels of clutter.
At the annual meeting on Wednesday, shareholders approved a resolution to commission an independent audit of worker safety. It is unclear whether the resolution is binding and whether the retailer will conduct the audit.
Read the full earnings report here.