CEO: Dollar General shoppers are struggling

Dollar General’s stock price dropped nearly 20% on Thursday afternoon after the discounter noted a “more challenging macroeconomic environment than previously anticipated” as its shoppers are increasingly forced to rely on food banks and mounting credit card debt.

The results prompted Dollar General to revise its economic forecast for the fiscal year, with net sales growth downgraded to 3.5% to 5% compared to the previous expectation of 5.5% to 6%.

For the quarter ended May 5, same-store sales of food and beverages rose 4.3%, outpacing overall same-store sales growth of 1.6%. But sales of discretionary goods fell 8.5% and traffic also declined.

Dollar General’s operating profit decreased 0.7% to $740.9 million during the quarter.

“While we gained market share in nonconsumables again this quarter, our share in consumables was essentially flat as we believe the macro headwinds have had a disproportionate impact on our core customer,” CEO Jeffrey Owen told analysts, according to a transcript from financial services site Sentieo.

The reduction in SNAP benefits that began on March 1 has had a significant impact on Dollar General shoppers, Owen said.

“And unfortunately, that impacted her even more than we expected and, quite frankly, more than she expected,” he said of the typical Dollar General shopper. “And so, in March, she simply pulled back. And, back half of March, we saw her pull back and really pull out of spending. The good news is in April, she started to return and she continues to return in May as well.”

Dollar General shoppers say they’re now relying more on food banks, personal savings and credit cards as they buy fewer items per trip and focus on $1-priced products to meet their needs, he noted.

The Goodlettsville, Tennessee-based discount retailer said it added more than 18,000 cooler doors to its stores during the first quarter as part of its ongoing DG Fresh initiative, with plans to install more than 65,000 cooler doors before the end of the year.

By the end of the first quarter, Dollar General sold fresh produce in nearly 3,900 stores, with plans to expand the offering to more than 5,000 stores by the end of 2023.

“And while produce is not currently serviced by our internal supply chain, we continue to believe that DG Fresh provides a potential path forward to expand our produce offering to more than 10,000 stores over time,” he said. “Despite the meaningful improvements we have made and savings that we have realized to date as a result of DG Fresh, we believe we still have an opportunity to drive significant additional returns with this initiative in the years ahead.”