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 (TGT.N), Walmart (WMT.N) 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.
