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A squeeze on budget shoppers has forced US discount retailer Dollar General to cut its sales forecast, sending its shares down 20 per cent in a sign of mounting pressures in the American economy.
The store chain known for dollar-priced goods on Thursday predicted net sales growth in the range of 3.5-5 per cent in 2023, down from a previous estimate of between 5.5-6 per cent.
“Our sales guidance assumes our customer will remain under pressure for the remainder of the year,” Kelly Dilts, chief financial officer, said on a call with investors.
The weaker outlook comes as US consumers are increasingly stretched by months of persistent inflation. Nearly a third of US adults reported they were either “just getting by” or “finding it difficult to get by”, according to a survey taken in late 2022 that was released last week by the Federal Reserve.
Higher inflation and depleted coronavirus pandemic savings have hit lower-income consumers, the core customers of retailers such as Dollar General. Rival Dollar Tree last week cut its profit outlook as it said that customer spending was shifting away from durable goods to lower-margin food.
Dollar General also said that its core customers were spending more on low-margin essential items. At the same time, the company reported more customers with higher incomes coming through its doors.
“While we have attracted and retained a significant number of customers in higher income brackets in recent years, our guidance does not assume a significant trade-in benefit for this year,” Dilts said, referring to the effects of a shift in customer income profiles.
Dollar General reported net sales in the first quarter that ended May 5 increased 6.8 per cent to $9.3bn, missing analysts’ expectations for revenue of $9.46bn, as customer traffic declined and sales fell in apparel, home and seasonal categories. Among the economic drags on the company were lower tax refunds than customers expected, reductions in government food assistance payments and poor weather in March and April.
“We believe the macro headwinds have had a disproportionate impact on our core customer,” chief executive Jeff Owen said. “We continue to see signs of increasing financial strain on our customers as they seek affordable options, including increased reliance on private brands and items at or below the $1 price point.”
Same-store sales, which strip out the effects of new store openings, increased only 1.6 per cent in the quarter. Owen said on a call with investors that same-store sales declined 2 per cent in April, with the weak trend continuing into May. Dollar General cut capital spending plans for the fiscal year and will only open 990 new stores instead of the previously planned 1,050.
The company now expects same-store sales growth to be in the range of about 1-2 per cent for the fiscal year, compared with previous expectations between 3 -3.5 per cent. Earnings per diluted share are expected to range from no change to a decline of 8 per cent this year, compared with previous guidance of growth of 4-6 per cent.
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