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Lower-income American households are running out of money at the end of every month, the discount retailer Dollar General said as it released dismal results that drove its shares down almost 30 per cent.
The largest US dollar store chain, with more than 20,000 locations across 48 states, painted a bleak financial picture for many of its customers after years of inflation and the depletion of savings built up during the pandemic. Shrink, an industry byword for inventory losses that includes shoplifting, was also on the rise, it added.
The Tennessee-based company’s small-format stores sell a variety of food items and household goods at low prices, including many for $1. Its locations are concentrated in rural towns and poorer urban neighbourhoods. “Our core customers are often among the first to be affected by negative or uncertain economic conditions and among the last to feel the effects of improving economic conditions,” company filings said.
Chief executive Todd Vasos said that these core customers, who account for about 60 per cent of Dollar General’s sales, come predominantly from households earning less than $35,000 a year and were now feeling “financially constrained”.
“The majority of them state that they feel worse off financially than they were six months ago as higher prices, softer employment levels and increased borrowing costs have negatively impacted low-income consumer incentive,” he said.
Dollar General reported that its same-store sales — an industry metric for stores open for at least a year — grew by 0.5 per cent in the quarter that ended on August 2, below its own forecasts and those of Wall Street analysts. The growth came entirely from consumables such as food, rather than from more discretionary items such as apparel and seasonal and home goods.
Executives pointed out that sales were weakest in the last week of each month. Speaking of its typical consumer, chief financial officer Kelly Dilts said: “She started to run out of money by the end of the month.”
The comments stood in contrast with recent results from Walmart, the largest US retailer, and big-box rival Target. Both companies reported robust sales growth in their latest quarter, with Walmart adding it had taken market share from rivals.
Shares of Dollar General were down 29 per cent at midday in New York, their sharpest intraday drop on record. The company’s net sales increased by 4.2 per cent year on year to $10.2bn. Operating profit fell 20.6 per cent to $550mn, which Dilts attributed in part to markdowns and increases in inventory damaged or lost due to shrink.
Rival Dollar Tree, which operates stores under its namesake banner and the Family Dollar brand, is scheduled to report earnings next week. Its shares were off 9 per cent in lunchtime trading.
