Dollar General shares sink on second annual forecast cut, disappointing investors By Reuters

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© Reuters. FILE PHOTO: Dollar General shopping carts are seen outside a store in Mount Rainier, Maryland, U.S., June 1, 2021. REUTERS/Erin Scott

By Savyata Mishra

(Reuters) -Dollar General’s shares slumped as much as 18% on Thursday after it forecast a steep drop in full-year profit and missed Wall Street’s expectations for second-quarter results due to weak customer traffic and a shift to lower-margin goods.

The Goodlettsville, Tennessee-based retailer has fallen short of the average analyst forecast for four straight quarters, and on Thursday cut its annual profit and sales targets for the second time this year.

Its stock is down more than 45% in 2023, making it one of the worst performers on the , as it battles bloated inventories and a shift in consumer spending patterns.

The quarter “marks the fourth consecutive guide down for Dollar General (NYSE:), which admittedly creates further uncertainty if we are hitting the bottom yet,” said Raymond James analyst Bobby Griffin.

U.S. consumers, particularly in low-to-middle-income groups, have remained under strain from still-high inflation, a gradual reduction in food assistance benefits by the government and lower tax refunds.

“While we expect traffic trends to improve, we do not expect positive traffic until the fourth quarter,” CFO Kelly Dilts said.

To better compete with rival Dollar Tree (NASDAQ:) and bigger grocer Walmart (NYSE:), Dollar General has been investing to keep prices low for its everyday staples, improve merchandise mix and increase wages.

Its gross profit as a percentage of net sales fell 126 basis points in the quarter from last year as retail shrink – inventory lost to theft and damage – worsened.

The company flagged $100 million in additional shrink headwinds this fiscal.

The discount retailer now expects fiscal 2023 same-store sales in the range of a 1% decline to 1% growth, compared to analysts’ expectations of a 1.45% growth, according to Refinitiv IBES data.

Adjusted earnings per share is seen in the range of $7.10 to $8.30, or a decline of 34% to 22%, from a flat-to-8% decline in the prior outlook.

Quarterly same-store sales fell 0.1%, missing analysts’ average estimate of a 1.08% rise. It earned $2.13 per share on an adjusted basis, weaker than analysts’ estimates of $2.46.

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