Discount retailer Dollar General slashed its annual sales and profit forecast on Thursday amid increased competition, with budget-conscious customers prioritizing essential purchases over higher-margin goods, sending its shares down nearly 25%.
The retailer, like its peer Dollar Tree (DLTR.O), is battling stiff competition with rivals like Walmart (WMT.N), Target (TGT.N) and China's PDD Holdings's (PDD.O) e-commerce platform Temu offering low-priced merchandise, while facing weak demand for its home goods, seasonal items and apparel.
Both Target and Walmart raised their full-year profit forecast, benefiting from price cuts to attract increasingly price-sensitive consumers.
"Despite advancing several of our operational goals and driving positive traffic growth, we are not satisfied with our financial results, including top-line results," CEO Todd Vasos said, while attributing softer sales to its customer base feeling financially constrained.
The company said it was taking "decisive action" to provide more value to its customers, while also improving its in-store experience.
"It seems pretty clear that dollar store operators are losing market share to other discount retailers," Arun Sundaram, an analyst with CFRA Research said, and added the retailer would need to cut prices and increase promotions.
Dollar General now expects fiscal 2024 same-store sales to be up 1% to 1.6%, compared with the prior forecast of 2% to 2.7% rise.
It also expects annual earnings per share in the range of $5.50 to $6.20, compared with the prior forecast of $6.80 to $7.55 per share.
Dollar General's margins continued to be pressured by still-high labor costs, as well as increased markdowns, inventory damages and retail shrink, which includes losses from theft or damage.
The company posted net sales of $10.21 billion for the quarter ended Aug. 2, compared with analysts' average estimate of $10.37 billion, according to LSEG data.
It also reported a profit of $1.70 per share for the quarter, compared with analysts' estimate of $1.79 per share.
Shares of the company were trading at $94.60 in premarket trading and were on track to open at its lowest since June 2018, while those of its main rival Dollar Tree were down about 10%.
