Dollar General says consumer spending to be pressured through 2024

By Granth Vanaik

(Reuters) -Dollar General warned on Thursday that customers would remain price sensitive throughout the year, hurting demand for its more profitable discretionary items, at a time when sticky inflation continues to pressure household budgets.

Shares of the company have reversed course to fall as much as 5.3%, overshadowing its upbeat first-quarter results where the retailer saw more customers visiting its stores for affordable groceries.

Dollar General has been struggling with budget-stretched Americans switching to less profitable consumables and unwilling to spend on non-essential items such as home goods and apparel.

“Our customer continues to be very value-driven,” CFO Kelly Dilts said on a post-earnings call. “We expect sales mix pressure to be above our original expectation.”

Intense competition from rivals such as Target, Walmart and Chinese e-commerce platform Temu has also pressured sales at dollar stores.

Results from Target last week indicated that shoppers were delaying purchases and spending increasingly on out-of-home activities.

Dollar General expects same-store sales for the second quarter to increase in the low 2% range versus LSEG estimates of 2.25% growth. It forecasts profit to be between $1.70 and $1.85 per share, compared with analysts’ expectation of $1.92.

The softer-than-expected projections came even as the retailer made efforts to sell relevant merchandise, expand its private-label offerings and have more employees at its stores.

“Dollar General is still pretty early on its turnaround strategy … it’s going to take at least a few more quarters before we see strong top and bottom line growth,” CFRA Research’s Arun Sundaram said.

The company reported gross profit as a percentage of net sales at 30.2% in the first quarter, down from 31.6% a year earlier, hurt by higher markdowns and an increase in retail shrink, where inventory is lost or damaged due to theft or breakage.

Its same-store sales rose 2.4% for the first quarter, compared with estimates of a 1.61% increase. The company also posted per-share profit of $1.65, versus analysts’ expectation of $1.57.

(Reporting by Granth Vanaik in Bengaluru; Editing by Shilpi Majumdar)