Dollar General, the largest discount retailer in the USA, released a bleak forecast for its financially struggling customers on Thursday, leading to a historic stock plunge. The shares dropped by more than 30 percent after the company presented disappointing results for the past quarter and indicated that many of its customers have little money left by the end of the month.
The chain, which operates over 20,000 branches in 48 states, reported that sales in existing branches rose by only 0.5 percent in the second quarter, missing both its own forecasts and those of analysts. This growth was mainly achieved through the sale of consumer goods such as groceries, while demand for less essential products such as clothing and household items weakened.
Todd Vasos, CEO of Dollar General, stated that the company's main customers, who primarily come from households with an annual income of less than $35,000, currently feel "financially constrained." "The majority of these customers report feeling financially worse off than they did six months ago," said Vasos, referring to rising prices, declining employment numbers, and higher credit costs.
Particularly concerning for Dollar General was the fact that sales were weakest in the last week of each month, indicating an increasing financial strain on customers. Kelly Dilts, CFO of Dollar General, emphasized: "Our customer has no money left at the end of the month.
The increase in net sales by 4.2 percent compared to the previous year to 10.2 billion USD could not alleviate investors' concerns, as the operating profit fell by 20.6 percent to 550 million USD. Dilts attributed this, among other things, to price reductions and increased inventory losses due to shrinkage, an industry-wide term for inventory losses including theft.
While Dollar General reported an increasing burden on its customers, other retailers such as Walmart and Target reported solid sales growth. Walmart stated that it was able to gain market share from its competitors. In contrast, Dollar General saw a 1 percent increase in customer traffic, but the average transaction value declined by 0.5 percent.
The stocks of Dollar General closed on Thursday with a decrease of 32.2 percent at 84.03 USD. Competitors such as Dollar Tree, which will present its quarterly figures next week, also recorded a price drop of 10.4 percent.
