Dollar General’s shares decline due to reduced consumer spending and theft.
Dollar General Corp. Shares Drop After Disappointing Earnings Report
Dollar General Corp. shares took a hit, dropping 12 percent on Monday afternoon following the release of a weaker-than-anticipated earnings report for the second quarter. The company also issued a warning about consumer trends and theft, causing concern among investors.
The company revised its net sales growth expectations, projecting a range of 1.3 percent to 3.3 percent, down from the previous estimate of 3.5 percent to 5 percent. Additionally, Dollar General expects same-store sales growth for fiscal 2023 to range from a 1 percent decline to 1 percent growth, a decrease from previous expectations.
Concerns About Gross Profit and Consumer Trends
The company’s news release stated, “Gross profit as a percentage of net sales was 31.1 percent in the second quarter of 2023 compared to 32.3 percent in the second quarter of 2022, a decrease of 126 basis points. This gross profit rate decrease was primarily attributable to lower inventory markups and increased shrink, markdowns, and inventory damages, as well as a greater proportion of sales coming from the consumables category, which generally has a lower gross profit rate than other product categories.”
Rising Concerns About Theft and Shoplifting
The term “shrink” refers to inventory loss due to causes other than sales, such as theft or shoplifting. Retail groups have reported a significant increase in theft in recent months, which has impacted Dollar General’s gross profit and overall performance.
The company also reported a decrease in same-store sales by 0.1 percent, lower than previous expectations. Operating profit experienced a significant decline of 24.2 percent, amounting to $692.3 million, and diluted earnings per share dropped by 28.5 percent to $2.13 per share.
Despite the disappointing results, Dollar General’s CEO, Jeff Owen, expressed optimism about the company’s progress in improving supply chain execution, store operations, and inventory management. He stated, “We are now taking further actions and making additional investments to accelerate our progress and ultimately serve our customers even better. These investments will strengthen our foundation as we move into 2024 and focus on driving sustainable growth and creating long-term shareholder value.”
In a call with analysts, Mr. Owen highlighted that consumers are being cautious with their spending, prioritizing essential items over discretionary purchases. To adapt, Dollar General has implemented price reductions on key items.
Retail analyst Neil Saunders noted that Americans are scaling back on shopping due to high inflation. He explained, “Dollar General’s core customers are feeling the acute pressure of the cost-of-living crisis.” Lower-income shoppers are cutting back on non-essential purchases, especially after the reduction in SNAP payments following the end of temporary pandemic benefits.
Jefferies analyst Corey Tarlowe described Dollar General’s results as soft but emphasized the company’s resilience. He stated, ”[Dollar General] stays well-positioned due to its high mix of consumables, private label expansion, and organic growth opportunities.”
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