Dollar General (DG) shares fell 28% on Thursday after the discount retailer cut its guidance, citing financially stressed customers. Dollar General’s share price decline on Thursday was on track to be its biggest ever.

Dollar General expects store sales growth in the range of approximately 1% to 1.6% in fiscal 2024, compared to the previous expectation in the range of 2.0% to 2.7%.

“It seems very clear to us that … this low-end consumer continues to be very financially stressed,” CEO Todd Vasos told analysts during the company’s conference call Thursday morning.

Vasos said the last week of each calendar month in the quarter was “by far the weakest” as customers focused on a mix of the 2,000 items that still cost $1 or less. Customers bought more consumables and fewer seasonal, home and apparel items during the quarter.

“All of these points suggest that this is a cash-strapped consumer, even more so than in the first quarter,” he added.

Shares of competitor Dollar Tree, which will announce its quarterly results next week, also fell by more than 9 percent for this reason.

Dollar General has undergone a “back to basics” improvement plan under the leadership of Vasos, who returned to Dollar General last year.

However, Wall Street has grown impatient with the dollar store model as retail giants like Walmart (WMT) increase their market share among consumers of all income levels.

On Thursday, CFRA Research senior equity analyst Arun Sundaram downgraded Dollar General to a hold from a buy rating. Sundaram wrote, “Dollar store operators have lost some of their appeal on price and convenience as other retailers like Walmart expand their omnichannel offerings and have more opportunities to keep prices low.”

The analyst expects Dollar General to have to invest more money in store remodeling, price reductions, inventory markdowns and wage increases, which could potentially lead to margin declines.

Dollar General said quarterly gross profit as a percentage of net sales fell to 30%, compared to 31.1% in the same period last year, due in part to higher markdowns, higher inventory damage, a larger share of sales in the consumables category and increased shrinkage.

The company reported adjusted earnings per share of $1.70 (expected $1.79) and revenue of $10.21 billion, below Wall Street consensus expectations of $10.36 billion.

Dollar General stock has fallen more than 30% this year

Ines Ferre is a senior business reporter at Yahoo Finance. Follow her on X at @ines_ferre.

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