Shares of Dollar General Inc. fell 32 percent on Thursday to their lowest in more than six years after the discount retailer sharply cut its full-year sales and profit outlook amid intensifying competition for budget-conscious U.S. shoppers.
Dollar stores are under pressure as better-funded rivals such as Walmart and Target expand their sales of low-priced everyday items.
The rapid growth of Temu, an e-commerce platform owned by China's PDD Holdings, also weighed on the company's business.
“(Dollar General's results) highlight the difficulty for Walmart to win and maintain market share in a slowing growth environment,” said Michael Montani, an analyst at Evercore ISI.
Dollar General's core customer base, which accounts for about 60% of total sales, consists of households earning less than $35,000 a year.
“Middle- and upper-income households are also looking for value, but our customers are feeling more pressure to spend and are arguing that they're not feeling the same pressure as lower-income households,” Chief Executive Officer Todd Vasos said on a conference call after the earnings release.
Dollar General previously expected same-store sales growth of 2% to 2.7% for fiscal 2024, but now sees it growing 1% to 1.6%. It previously expected full-year earnings per share to be between $6.80 and $7.55, but now sees them between $5.50 and $6.20.
“Dollar store operators are clearly struggling in the current macroeconomic environment… Dollar General will likely need to cut prices and step up promotional efforts to regain foot traffic,” said Arun Sundaram, an analyst at CFRA Research.
Dollar General shares suffered their worst day on record, closing at $84.03, their lowest since June 2018.
Shares of rival Dollar Tree fell 10%.
Dollar General's profit margin fell to 30 percent in the second quarter from 31.1 percent a year earlier, hurt by retail contraction including increased markdowns, spoiled inventory and losses from theft and breakage.
Company executives said increased promotional activities would pressure sales and profits throughout the year.
The company reported net sales of $10.21 billion for the three months ended Aug. 2, compared with analysts' average forecast of $10.37 billion, according to LSEG data.
Earnings per share were $1.70, below expectations of $1.79.
