Dollar General's shares closed about 12% lower on Thursday, after it forecast a steep drop in annual profit and missed market 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 average analyst forecasts for four straight quarters, cutting its full-year profit and sales targets on Thursday for the second time this year.
Its stock tracked a nearly three-and-a-half-year low, slumping as much as 18.5% to hit $128.48 (€118.57) – making it one of the worst performers on the S&P 500 index so far this year - as it battles bloated inventories and a shift in consumer spending patterns.
'A Much Bigger Cut'
"We thought there was a risk that DG (the company) would need to invest more in stores than management initially expected, and reduce guidance as a result, but this is a much bigger cut than we (and the market) were expecting," Citi analyst Paul Lejuez said.
"Our revised guide is really a function of the slower transactions that we're seeing, and higher expected shrink," CFO Kelly Dilts said on a call with analysts.
The discount retailer plans to clear excess non-consumables inventory and ramp up labor investments ahead of the crucial holiday season in the United States.
"Dollar General's aggressive guidance cut should help establish a floor on the stock, but a deeper look suggests its strategic pivot may not be enough," said Wells Fargo analyst Edward Kelly.
The company said its low-to-middle-income customer was seeking cheaper options as it remained "financially constrained".
"We do not expect positive store traffic until the fourth quarter," Dilts said.
Dollar General's 2023 same-store sales forecast of a 1% decline to 1% growth was slower than analysts' expectations of a 1.45% rise, according to Refinitiv data.
Excluding items, profit-per-share is expected to decline between 22% and 34%, steeper than a flat-to-8% drop it forecast earlier.
Its gross profit as a percentage of net sales fell 126 basis points in the quarter as retail shrink - inventory lost to theft and damage - worsened. It flagged $100 million in additional shrink headwinds since its last analyst address in June.
Same-store sales for the quarter ended Aug. 4 fell while analysts had expected a 1.08% rise. It earned an adjusted $2.13 per share, missing analysts' estimates of $2.46.